New Rules Could Lower Rates for Credit Cards

Article excerpt

WASHINGTON - Federal disclosure rules taking effect today will make it easier to shop for a credit card, fostering competition that could lower interest rates for the nation's 107 million cardholders.

The regulations, adopted in April by the Federal Reserve Board, require credit card issuers to disclose the interest rate, monthly fee, grace period and other terms in a chart on the application used to sign up customers.

Until now, companies have been able to attract customers through hyped-up advertisements and mail solicitations, without disclosing the card's costs until it arrived in the mail.

Hype and glitz are still permissible, but now will have to be accompanied by hard facts.

``The ball is now clearly in the consumer's court. There will be big-print, up-front disclosure,'' said Rep. Charles Schumer, D-N.Y., the sponsor of legislation adopted last October which directed the Fed to formulate the disclosure rules.

The rules apply to bank cards, such as Visa, MasterCard and Discover; to department store cards; and also to charge cards, such as American Express and Diners Club, which require all charges to be paid each month.

``Companies that were using gimmicks to hide their high rates can't now,'' said Peggy Miller, a lobbyist for the Consumer Federation of America. ``I'm very hopeful that this will at least provide the edge to consumers to make better judgments.''

Consumer activists are hoping the regulations will force credit card companies to compete by lowering their interest rates and annual fees. But Robert B. McKinley, publisher and editor of RAM Research's Bankcard Update, a Frederick, Md., newsletter that follows the industry, has doubts.

Competition has increased in the past several years, but rates are still high, even in the dozen or so states such as California and New York which have their own disclosure laws, he said.

Nationally, cards offered by banks had average interest rates of 18.28 percent in August and an average annual fee of $16.97, McKinley said.

One reason is the growing concentration of the industry as large institutions buy out smaller credit card operations, he said. Another is that consumers don't appear to pay much attention to interest rates, even when card companies disclose them.

Economists attribute the indifference in part to the fact that most people intend to pay off their entire bill each month, avoiding interest charges. But a substantial portion don't follow through on their good intentions.

Credit card rates first became a political issue in the early 1980s when short-term interest rates soared above 20 percent. Consumer groups sought disclosure rules and federal caps on the rates, but made little headway until they dropped their demand for caps. …