The Federal Reserve on Thursday will vote on sweeping reform of the credit card industry that would ban practices such as retroactively increasing interest rates at will and charging late fees when consumers are not given a reasonable amount of time to make payments.
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The proposal would also dictate how credit card companies should apply customers’ payments that exceed the minimum required each month. When different annual percentage rates apply to different balances on the same card, banks would be prohibited from applying the entire amount to the balance with the lowest rate. Many card issuers do that so that debts with the highest interest rates linger the longest, thereby costing the consumer more.

Industry officials have lobbied against the provisions, particularly the one restricting their ability to raise interest rates. They have warned that the changes would force them to withhold credit or raise interest rates because they won’t be able to manage their risk.

“If the industry cannot change the pricing for people whose credit deteriorates then they have to treat most credit-worthy customers the same as someone whose credit has deteriorated,” Yingling said. “What that means for most people is they’ll pay a higher interest rate.”