The Senate Banking, Housing and Urban Affairs Committee, which is holding a hearing today on Modernizing Consumer Protection in the Financial Regulatory System: Strengthening Credit Card Protections.

"What is important is that every year millions of consumers have access to something that otherwise would be unavailable: interest-free loans," NRF Senior Vice President and General Counsel Mallory Duncan said. "Tens of billions of dollars of purchases are made by the customers of NRF members. In a down economy, it is more than unfortunate that the Federal Reserve and banking regulators have seen fit to effectively ban these programs by making them financially unviable. We do not design the programs or the current disclosures. But we and American consumers will suffer the consequences if they are effectively banned. We ask that the committee revisit the Fed's recent actions and instead take steps that will improve transparency while preserving one of the genuine consumer benefits in today's pressed financial environment."

Duncan's comments came in a letter to the Senate Banking, Housing and Urban Affairs Committee, which is holding a hearing today on "Modernizing Consumer Protection in the Financial Regulatory System: Strengthening Credit Card Protections."

The Federal Reserve in December issued a wide range of new regulations intended to improve disclosures that consumers receive in connection with credit card accounts and other revolving credit plans. Buried among the 1,500 pages of rules, commentary and regulations were a variety of provisions that would restrict circumstances under which interest can be charged to customers who enter deferred interest payment plans but don't complete their payments on time.

The Fed had previously questioned whether retailers and the credit card companies or banks who administer the deferred interest programs sufficiently explain their terms and conditions, and sought input on how to make disclosures more clear. Retailers expected possible regulations on how disclosures are made but, "Rather than effectively regulate them, the Federal Reserve has effectively banned these programs – throwing out the good with the bad," Duncan said.

Commonly known as "One Year Same As Cash" (or for other periods of time), deferred interest plans are widely used by retailers to help customers purchase big-ticket items they need immediately but might not be able to afford to pay finance charges to buy. Home appliance stores, furniture stores, jewelers and home improvement stores are among large users of the plans. Customers are allowed to finance a purchase for a set period of time and their interest is forgiven if they complete payments within that period, but if they fail to do so the plans revert to being an ordinary revolving charge program in which interest applies. Details vary from one plan to the next, however, leading to the Fed's concerns about whether terms are too complicated to be easily explained to consumers.

"There is a time/dollar cost to money," Duncan said. "It would be very difficult for a retailer to engage a financial institution to provide an extended deferred interest program for the retailer's customers if there were zero probability of the financial institution being paid for its loans. Consequently, good programs are designed to divide interest expense between those who pay within the deferral period and those who do not. Retailers also subsidize a portion of the cost."

The new regulations don't go into effect until July 1, 2010, but could already affect some deferred interest offers because the length of the agreements can sometimes be two years or more.