Fri, May 9, 2008 (2:06 a.m.)

The Federal Reserve has proposed new rules for the credit card industry to protect consumers by prohibiting practices the agency considers unfair.

One of the proposed rules would restrict lenders from taking a consumer’s payments and applying them to debts that have lower interest rates before putting them toward balances with higher interest rates. Banks do this to collect more interest, but Federal Reserve officials say it unfairly keeps consumers deeper in debt.

The Fed also wants to do away with a practice known as “double-cycle billing,” which preys on consumers who pay some, but not all, of their credit card balances every month. For example, if a consumer owes $500 on a credit card and makes a $400 payment, his next bill will charge interest based on the entire $500 that was owed on the previous month’s statement, rather than the unpaid balance of $100.

The new rules also would prohibit lenders from charging security deposits and fees when credit is made available and would require lenders to provide customers with “a reasonable amount of time” to make payments.

In advertising lines of credit that have multiple interest rates, banks would have to include the factors that determine whether a consumer qualifies for the lowest interest rate and the highest credit limit.

The Fed’s proposal, announced Friday, will remain open for public comment until mid-July. Congress is considering legislation that calls for similar measures, and some lawmakers offered guarded praise for the Fed’s actions. Banking industry officials oppose the proposed rules and have warned that such restrictions could lead to higher interest rates and credit that is tougher to obtain.

Such threats ring hollow, however. The Consumer Federation of America told the Associated Press that the average debt for more than half of American households that have revolving credit card balances is $17,000.

Certainly, people should pay off what they owe. But it is not fair to prevent consumers from paying off their cards through deceptive practices and ever-increasing fees.