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New rules promote smarter use of credit cards

The government's new watchdog wants consumers to have a complete picture of a card's costs before they apply — including its exact interest rate and credit line. Currently those terms aren't determined until after an application is processed.

Having the information upfront will help borrowers make smarter choices, according to David Silberman, the assistant director for card markets for the new Consumer Financial Protection Bureau.

"When the costs and risks of a credit card are clear, consumers generally will make wise decisions about borrowing," said Silberman. He said letting people compare rates and credit limits before applying for a card would be a significant step toward that goal.

The CFPB can't prevent consumers from charging too much and it can't dictate the interest rates banks charge. But it's planning several changes aimed at helping consumers avoid fees and debt overload, simply by making the right information available, Silberman said.

In addition to the early disclosure of specific interest rates and credit lines, the agency is considering tweaking the summary of rates and fees that appears on marketing materials.

For example, balance transfer offers usually carry a one-time fee of about 4 percent. Yet the first line of the summary of terms lists the interest rate for balance transfers, which often is a promotional rate of 0 percent. The fee information appears several lines down.

The CFPB also is developing easier-to-understand legal disclosures for new card customers.

The changes would build on sweeping new regulations that went into effect last year.

Under the new rules, monthly statements must now state how long it would take to pay off debt if only minimum payments were made, and how much interest a borrower would pay over that period. Statements show how much borrowers need to pay to be debt-free within three years.

To understand the effect of the additional disclosures, officials are studying data from credit bureaus, academics and regulators that were produced for a conference marking the one-year anniversary of the new requirements.

So far, the additional information appears to be helping consumers.

A phone survey of 800 cardholders by market research firm Synovate found that about one-third of the respondents who noticed the changes to their bills, used their cards less or made larger payments. About the same number said the new rules make it easier to pay on time, according to the study, which was commissioned by the CFPB.

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