New from the Money Scoop
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.
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, with lenders crediting payments to balances with lower rates so they can continue to charge interest for balances at higher 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.
The Consumer Federation of America estimates that credit card debt held by consumers is about $850 billion, some four times what it was in 1990. The group says the average debt for those 58 percent of card-holding households that do not pay their balance in full every month is about $17,000.
Stung by rising gasoline and food prices, Americans are finding creative ways to cut costs on routine items like groceries and clothing, forcing retailers, restaurants and manufacturers to decode the tastes of a suddenly thrifty public.
Spending data and interviews around the country show that middle- and working-class consumers are starting to switch from name brands to cheaper alternatives, to eat in instead of dining out and to fly at unusual hours to shave dollars off airfares.
Though seemingly small, the daily trade-offs they are making — more pasta and less red meat, more video rentals and fewer movie tickets — amount to an important shift in consumer behavior.
Behind the belt-tightening — and brand-swapping — is the collision of several economic forces that are pinching people’s budgets or, at least, leaving them in little mood to splurge.
The price of household necessities has surged, with milk topping $4 a gallon in many stores and regular gasoline closing in on $3.60 a gallon nationwide.
Home prices are sliding, wages are stagnant, job losses are growing and the Standard & Poor’s 500-stock index, a broad measure of stock performance, is down 6 percent in the last year. So consumers are going on a recession diet.
In March, Americans spent less on women’s clothing (down 4.9 percent), furniture (3.1 percent), luxury goods (1.3 percent) and airline tickets (1.1 percent) compared with a year ago, according to MasterCard SpendingPulse, a service of the credit card company that measures spending on 300 million of its cards and estimates purchases with other cards, cash and checks.
Wal-Mart Stores reports stronger-than-usual sales of peanut butter and spaghetti, while restaurants like Domino’s Pizza and Ruby Tuesday have suffered a falloff in orders, suggesting that many Americans are sticking to low-cost home-cooked meals.
Over the last year, purchases of brand name cookies and crackers have fallen, according to Information Resources, which tracks retail sales.
To drum up business, Domino’s is offering a new deal: three 10-inch pizzas for $4 each. “We are not recession-proof,” said the chain’s president, J. Patrick Doyle.
But chains that emphasize low prices, like TJ Maxx and Wal-Mart, are thriving. And cut-rate supermarkets, like Save-A-Lot, are swamped.
“People are not not spending, but they are changing how they spend,” said one analyst at the NPD Group.
And they are often willing to sacrifice convenience or swallow their pride.