Fed OKs plan to rein in deceptive credit cards

The Federal Reserve and other regulators initiated steps Friday to end ''unfair and deceptive'' credit card industry practices assailing consumers who are already struggling to cope in a bad economy.

The proposed rules would be the biggest clampdown on the industry in decades, aiming at protecting people from credit card companies that arbitrarily raise interest rates or don't give borrowers adequate time to pay their bills.

The proposals would also restrict such lender practices as allocating all payments to balances with lower interest rates when a borrower has balances with different rates. The Fed board voted Friday to approve the recommendations.

Federal Reserve Chairman Ben Bernanke said the proposed rules ''are intended to establish a new baseline for fairness in how credit card plans operate.'' Consumers using credit cards ''should be better able to predict how their decisions and actions will affect their costs,'' he said.

The proposed new rules would prohibit:

--Placing unfair time constraints on payments. A payment could not be deemed late unless the borrower is given a reasonable period of time, such as 21 days, to pay;

--Unfairly allocating payments among balances with different interest rates;

--Retroactively raising interest rates on pre-existing balances;

--Placing too-high fees for exceeding the credit limit solely because of a hold placed on the account;

--Unfairly computing balances in a computing tactic known as double-cycle billing;

--Unfairly adding security deposits and fees for issuing credit or making credit available;

--Making deceptive offers of credit.

The agencies said the proposed rules also would require federal credit unions to give consumers a chance to opt out of an overdraft protection program. And they would prohibit those institutions from charging a fee for an overdraft caused by a hold placed on consumer's funds when a person uses a debit card.

Ken Clayton, senior vice president of card policy for the American Bankers Association, described the proposed changes as ''aggressive regulatory intervention in the marketplace that will result in higher prices and less consumer credit.''

''If card companies cannot fully reflect risk, then millions of consumers with good credit histories will end up with higher rates,'' the ABA's president and CEO, Edward L. Yingling, said in a statement.