Federal Reserve to rule soon on sweeping credit card changes

Among them: a letter from a single mother of three in Florida who wrote she paid her bill on time but her interest rate shot up from 7.9 to 29.99 per cent. 8220;I would have been better off going to a loan shark. I think their rates are more reasonable,8221; she wrote.

The changes under consideration would ban that practice and others considered by some to be unfair. 8220;The proposed rules are intended to establish a new baseline for fairness in how credit card plans operate,8221; Federal Reserve chairman Ben Bernanke said in May. 8220;Consumers relying on credit cards should be better able to predict how their decisions and actions will affect their costs.8221;

South Dakota eliminated the interest rate cap on credit cards almost 30 years ago and has thrived from the industry that employs as many as 20,000. The proposed limits on subprime cards could cost the state of 788,000 people from 3,000 to 5,000 jobs, said governor Mike Rounds. 8220;In essence it would shut down the low-limit credit card business across the US,8221; the Republican said.

Prime credit card companies generally could adapt to the five other proposed rule changes, but there8217;s not a business model that would work for dealing with the changes to subprime cards, he said. Rounds said he8217;s still urging the Fed to reconsider.

The state8217;s two biggest subprime card issuers are Premier Bankcard and Total Card. T Denny Sanford, Premier8217;s owner, is 15th on the December 8 Business Week list of top American philanthropists with an estimated 706 million in giving since 2004. His estimated net worth is 2 billion.

Greg Ticknor, president of Total Card, said he won8217;t know the effect until the change is announced on Thursday but the company likely would survive by adjusting the types of cards it issues.

Under the current proposal, some of the 70 million Americans with 8220;challenged credit8221; probably wouldn8217;t qualify for a card, so they8217;ll instead rely on payday loans, he said. 8220;In today8217;s economy, that8217;s the opposite of what they should be doing,8221; Ticknor said of the loss of credit.

Prime card issuers such as Citibank South Dakota, which moved its credit card operation from New York after South Dakota8217;s 1979 law change, would also feel the change, said Peter Garuccio, American Bankers Association spokesman.

8220;The Fed8217;s proposal represents an unprecedented way customers will relate and work with their credit card issuers,8221; he said, adding, 8220;What it does, by and large, is limit the ability of issuers to use risk-based pricing. And in so doing, the card companies will have to sort of change their models to figure out how to protect changing risks going forward. It8217;ll be a big challenge for the business.8221;

On Thursday, the Fed could adopt the proposals as written or make changes. But it8217;s unlikely the final rules will stray too far because otherwise, the Fed would have to seek public comment again, Garuccio said.

Travis Plunkett of the Consumer Federation of America said the public comments, most of which are posted on the Fed8217;s Web site, show deep frustration.