For years congress has been trying to pass a Credit Card Bill of Rights but the Senate repeatedly shoots it down. The Federal Reserve knew something had to be done so they took matters into their own hands on Thursday and set guidelines for the most controversial practices creditors do today. Some of the highlights are:

• Unless a payment is more than 30 days late, creditors will no longer be able to change interest rates on existing balances.
• There must be at least a 21 day grace period to make a payment before the credit card company can slap you with a late fee.
• Currently when you make a payment, it is applied to the lower interest rate balances first (such as 0% balance transfer offers) before it is applied to your higher interest rate balances such as normal purchases. Once the rules are in effect, it will be the opposite, and all payments (beyond the minimum payment) will be applied to the higher interest rate balances first.
• Customers must be notified 45 days before any changes to terms, such as fees and APR. Currently credit card companies are only required to give a 15 day notice.
• Double Cycle billing is prohibited. This is a practice where some creditors calculate interest based on the balance of the previous two months. So you may pay off your balance one month, but the next month if you carry a balance, you would be charged interest for both months.

Unfortunately, these rules won’t go into effect until July 2010. If you agree with us that there needs to be reform before then, contact your congressman and senator to tell them how you feel.

It is expected that this Thursday the Federal Reserve will be voting on a number of controversial matters practiced by credit card issues. These include things such as:

• Credit Card Grace Periods – Some credit card issuers have been shrinking their grace periods of the years, from 25 days, down to 15, and some down to 0 (meaning interest begins to accrue as soon as your billing cycle closes). It is expected (hopefully) that the Federal Reserve will require a minimum credit card payment grace period of 20 or 25 days from statement closing.
• Credit Card Double-Cycle Billing – A practice where issuers base interest on the balance of the past two cycles. This means you could have paid your bill on time in full last month, but this month you carry a balance, the credit card company will use both month’s balances in calculating the current months interest. Not many issuers practice this today and this is expected to be banned, thankfully.
• Credit Card Universal Default Policy – Perhaps the most controversial practice, where a lender will raise interest if the borrower defaults on another bill. It is expected that this will either be banned or strongly regulated; interest rate hikes will be limited and some bills would not qualify as a default.

Unfortunately, there are a few drawbacks here. Since fees are major source of income in the financial and banking industry, it is expected that creditors may raise interest rates in the future to make up for the decrease in fee income. Therefore, if you are a borrower with excellent credit who always pays your bills on time, this could hurt you if you carry a balance. For most other borrowers, it would be beneficial.

Whatever happens, Credit Card Forum will keep you updated on the developments as the unfold.