Have you ever had the unpleasant – but increasingly common experience of finding that your credit card provider has boosted your annual percentage rate (APR) without warning or explanation? Do you suspect that the grace period for making payments has been steadily shrinking? Does it seem as though the bank is applying your payments in such a way as to maximize interest charges? In other words, do you have the helpless feeling that you’re being taken for a financial ride?

Good news! Some welcome relief is in the works, courtesy of the U.S. government.

At the beginning of May, the Federal Reserve Board proposed a set of new regulations that would help to protect consumers against the aforementioned practices and a number of others considered to be unfair. These rules, proposed for public comment under the Federal Trade Commission Act, are a follow-up to the board’s 2007 proposal for improving credit card disclosures under the Truth in Lending Act.

The proposal includes five major protections for credit card users. (Note that although we’ll use the term “bank” throughout, these rules would also apply to other institutions such as savings associations and federally chartered credit unions.)

1. Rates on Preexisting Balances — Banks would be prohibited from increasing the APR on a preexisting balance (except under certain limited circumstances), and would have to permit the consumer to pay off that balance over a reasonable period of time.
2. Above-Minimum Payments — Banks would not be permitted to apply payments over the minimum in a way that maximizes interest charges.
3. Discounted Promotional Rates — Banks would be required to extend the full benefit of discounted promotional rates by (1) applying payments over the minimum to any higher-rate balances; and (2) offering a grace period for purchases for which the consumer is otherwise eligible.
4. “Two-Cycle” Billing — Banks would be prohibited from assessing interest charges using the “two-cycle” method, which calculates interest on balances on days in billing cycles preceding the most recent one. (In effect, the cardholder gets hit with a double whammy because interest is charged retroactively to the date of purchase—even if it’s the month before.)
5. Reasonable Payment Time — Banks would have to give consumers a reasonable amount of time to make payments.

Also included are regulations affecting payment of deposit account overdrafts, whether they’re created by a check, an ATM withdrawal, a debit card purchase, or some other type of transaction. Financial institutions would be required to provide consumers with notice and an opportunity to opt out of overdraft payments.

According to a Federal Reserve Board member, these and other proposed rules “would provide the benefits of substantial protection against practices that can harm consumers.” At a time when consumers are under relentless financial pressure on so many fronts, it’s reassuring to know that someone is watching our backs.

Related Posts:

1. Choosing a Credit Card
2. Good Credit vs. Bad Credit
3. How to Recover From Small Business Credit Card Debt
4. Using Credit Responsibly
5. Using New Car Purchases to Settle Credit Card Debt