Fed regulators set credit card rules

(NBC) - Federal regulators put credit card companies on notice Thursday. They are cracking down on what they call "unfair" practices, such as raising rates on customers who pay on time.

People may have gotten a letter from their credit card company saying their rate is going up or their credit limit has gone down, even though they pay on time. On Thursday, the government said, 'Enough. It is unfair, and it is time to protect consumers.' Three federal agencies that oversee banks and credit unions are adopting new rules that ensure what people sign up for is what they get.

"If you're making your payments on time, you should have confidence that when you go out and buy that furniture, the rate that you had the time you made that purchase, is the rate that you're going to have to pay off that furniture," said Montrice Yakimov of the Office of Thrift Supervision.

Consumer advocates explain that "on time" means less than 30 days overdue.

The rules also prohibit:

• rate increases in the first year, if the account is up-to-date
• grace periods shorter than 21 days
• interest based on last month's balance
• fees on subprime cards over half the credit limit

For people paying more than the minimum, the extra must be applied to the balance with the highest interest, but consumer groups are frustrated that it will not happen right away. The government is giving companies until July 2010 to revamp their billing systems to comply.

The American Banking Association calls these rules a "dramatic improvement" over the disclosures Congress requires, and said it will work to make them easy for customers to understand.