Credit card companies look for holes in new rules
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Sweeping credit card reforms that kicked in Feb. 22 promised to snuff out the card industry's most abusive practices, but experts say it's no time for consumers to let their guard down.
The Credit Card Responsibility and Disclosure Act will cut deeply into card issuers' revenues, so the industry has been busy trying to adapt by devising new fees and practices designed to refill the till.
"I don't want to push a panic button," Cardratings.com founder Curtis Arnold said last month. "But there will be new fees" for consumers to contend with, he said. "There will be stuff we haven't seen before."
In December, holders of Macy's and Bloomingdale's credit cards started seeing something new on their monthly statements: finance charges even though they weren't carrying a balance.
Citibank, which issues those department store cards, had adopted a practice known as "bill and rebate." That meant collecting interest charges upfront each month. For cardholders who paid their full balance on time, the finance charges were "refunded" on the next statement.
Steve Brobeck, executive director of the Consumer Federation of America, called the practice "completely inappropriate."
"Essentially, they are insisting you give them a free loan," he said.
Fortunately for Macy's and Bloomie's cardholders, the policy didn't last long.
The Federal Reserve suspected the practice was designed to get around certain regulations in the credit card act. So, when the Fed published the final reforms in January, the agency added language that prohibited bill and rebate.
"This method of interest calculation, commonly known as bill and rebate, was eliminated as of Feb. 22 as a result of the new credit card regulations," Citibank spokesman Sam Wang said in an e-mail last week. "We implemented the bill and rebate approach based on an earlier release of the regulatory revisions that suggested that approach was acceptable."
Mr. Wang said Citi adopted the practice because "regulations required us to stop using the previously used method of interest calculation." He declined to elaborate.
First Published March 11, 2010 12:00 am
