As recently reported (see Credit-Card Rule Receives Record Comments), the proposed rule that would prohibit the most egregiously unfair and deceptive practices of the credit-card industry elicited an enormous number of comments from small-business owners and consumers from all across the country. While most of these comments undoubtedly were in support of the proposed rule, the banking industry expressed their concerns over a proposal that stands to modify or abolish a range of practices that produce a sizable and growing source of their profits.

Unfortunately, the banking industry found a willing ally in its quest to weaken the much-needed reform. In an unusual move, the Office of the Comptroller of the Currency (OCC) urged, in a letter dated August 18—-two full weeks after the comment period closed-—the U.S. Federal Reserve Board (Fed) to make significant changes to its proposal

The OCC oversees roughly 80 percent of the credit card industry through its role as a regulator of large national banks. Echoing the complaints of the industry it purports to regulate, the OCC argued that the proposal could weaken banks and thrifts, and lead to a drastic reduction of credit for consumers. It also warned that by labeling certain practices unfair and deceptive, the Fed would open the industry up to litigation risks.

While the OCC voiced support for the rule’s effort to eliminate double-cycle billing and certain card fees, it argued that the rule’s restrictions on interest rate re-pricing were too broad and unnecessarily stringent. The letter stated: “We believe that such a regulatory 'freeze' of pricing terms for unsecured revolving credit, wholly without regard to the substantial changes in customer risk profile that occur over extended periods, is not consistent with safe and sound lending practices. We also believe it is not consistent with consumer expectations.”

The agency called the provision that prohibits retroactive interest rate hikes on existing balances, unless the borrower is more than 30 days late with his payment, excessive and urged the Fed to select a shorter period, such as five days after the payment is due. They also recommended requiring credit card companies to provide enhanced disclosures pertaining to rate increases.

The OCC argued that card companies should be allowed to re-price outstanding balances at the expiration date of cards, and suggested that consumers should be able to opt out of any rate increase.

The Fed is expected to finalize the regulations by the end of the year.

According to Rep. Carolyn Maloney (D-N.Y.), the sponsor of the NSBA-supported H.R. 5244, the Credit Cardholders' Bill of Rights, the mounting pressure on the Fed to “water down its regulation underscores the need to pass credit card reform legislation.” NSBA agrees and urges its members to contact their representatives and ask them to support H.R. 5244.