NAFCU Compliance Blog

Credit CARD Act Webcast; Titles I & II of Credit CARD Act

Posted by Steve Van Beek

NAFCU will be offering a webcast on the Credit CARD Act on Wednesday, July 15.  Obrea Poindexter and Oliver Ireland from Morrison & Foerster LLP will be the speakers.  Anthony Demangone, "The Compliance Guy," will moderate the webcast.

The "early bird pricing" for the webcast ended last Wednesday.  However, I've got a special offer for you - our blog readers.  Here is a link to a registration form to fax into NAFCU - just put "Blog" in the "Other" section referring to how you heard about the webcast.  By putting "Blog" - you will receive the early-bird pricing (i.e. "by 7/8/09" price) .  You can also call NAFCU's member service center to register - just mention the NAFCU Compliance Blog to receive the discount pricing.  Send in the form or call to register by COB on Tuesday to get the discount. 

As a reminder, even if you can not make the Wednesday webcast - all of NAFCU's webcasts are available for up to six months after the "live webcast" date.  This also comes in handy as you later focus on some of the Credit CARD Act provisions that become effective in February.  With the archived webcast, you can go back and get a refresher on those sections at any time.    

Additionally, Ms. Poindexter and Mr. Ireland will be discussing the Credit CARD Act at NAFCU's Regulatory Compliance Seminar in Charleston, SC from October 19-22, 2009.  We will also be talking Reg Z, International ACH's, Overdraft Protection Programs, and much more.  

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We have covered Title I & Title II of the Credit CARD Act so far.  I think now would be a good place to provide links to all the Credit CARD Act blog postings for easy reference.  This may be one you want to forward around to your colleagues so they have the easy access to each past blog posting.

Credit CARD Act - General

Overview Post and Provisions Effective August 20, 2009

General Post Explaining the Interplay between the Credit CARD Act, Reg Z, Truth in Lending Act, & UDAP

Links to Posts with NAFCU's Section-by-Section Overview: Link One & Link Two

Credit CARD Act - Title I

Post on Section 101 - Part 1: 45-Day Advance Notice; Right to Cancel; Mandatory 6-Month Review

Post on Section 101 - Part 2: Raising APRs on Outstanding Balances; Repayment Methods for Outstanding Balances; Limitations on APR Increases in First Year; Minimum 6-Month Promo Period 

Post on Section 102 - Part 1: Double-Cycle Billing; Over-the-Limit Fees; Opt-In for Over-the-Limit Fees

Post on Section 102 - Part 2: Limit on Fees for Automated Payment Methods; Reasonable & Proportional Penalty Fees Requirement

Post on Section 103: Restrictions on using the term "Fixed"; Advertising "Fixed" Rate Credit Cards

Post on Section 104: 5:00 Cutoff for Payments; Payment Allocation for Payments in excess of the Minimum Payment; Changes to CU Mailing Address

Post on Sections 105, 107, & 108: Subprime Cards; Enhanced Penalties; Clerical Amendments

Post on Section 106: Payment Due Dates; 21-Day Issue for Late Fees; Grace Periods

Post on Section 109: Consideration of Ability to Repay Requirement

Credit CARD Act - Title II

Post on Section 201: Minimum Payment Warning; Repayment Information Disclosures

Post on Section 202: Late Payment Deadlines; Penalty Rates; Branch Payments

Post on Section 203: Renewal Disclosures for Annual Fees

Post on Section 204: Posting of Credit Card Agreements on CU Websites; Sending Credit Card Agreements to the Federal Reserve

Post on Section 205: Advertising "Free Credit Reports"

Credit CARD Act - Section 202; By the Numbers Training Trick

Posted by Anthony Demangone

The effective date for all of the following subsections is February 22, 2010.  This is a fun section, as Subsections (A) and (C) apply to credit cards, while Subsection (B) applies to all open-end credit. (That last sentence was to be read with your "sarcasm" voice.)

Late payment deadlines.  Section 202 amends the Truth in Lending Act to require credit card issuers to disclose the due date by which a payment must be received to be on time.  You'll need to disclose the late fee as well.  Note that Regulation Z's July 1, 2010 amendments would have addressed this - but for all open-end lending.  (Link to Reg Z, 226.7 as it will look on July 1, 2010.  Scroll down to 226.7(b)(11) for the gory details.)

Penalty rates.  Subsection (B) of Section 202 requires credit unions to disclose the penalty rate that will apply to the account if a payment is not received by the due date. Now, this section applies to all open-end credit, not just credit cards.  Again, Reg Z would have addressed this.  Using the link above, See 12 C.F.R. § 226.7(b)(11)(b). 

Branch payments.  Subsection (C) of Section 202 requires that credit unions credit payments made in person at a branch of the credit union as of the date on which the payment is made. This section only applies to credit cards.  In other words, if a member makes a credit card payment at the credit union’s branch on his/her due date – the credit union would not be able to charge a late fee even if the payment is not processed until a later date.

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OK, enough of the Credit CARD Act for today.  How about a little BSA training tip?

I give a number of talks each year.  From my talks, I have learned one thing: people love graphs and data.  People can say this or that, but a graph, pie chart, bar chart, etc., with hard numbers - well - that tends to legitimize your talk.

Where can you get tons of info for your charts?  FinCEN's SAR Activity Review: By The Numbers.  FinCEN produces this data compilation twice a year, and they just released the latest version.  If you do BSA training or provide BSA data to your board and management team, this document is simply awesome.

I urge you to go into the document, and click on the Section 1 hyperlink.  The tabs on the bottom break down SAR filings by type, state, financial charter, etc.  Using this data, you can create great charts, PowerPoint slides, etc.  

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Have a great weekend, everyone!

Credit CARD Act - Section 201

Posted by Steve Van Beek

Section 201 amends Section 127(b)(11) of the Truth in Lending Act (TILA) to require "Minimum Payment Warnings" on periodic statements.  The periodic statement must also include repayment information for the member (detailed below).

Background Information on Minimum Payment Warnings & Disclosures

These requirements should be no surprise to credit unions.  Congress had included similar language in the Bankruptcy Abuse and Consumer Protection Act of 2005 (Bankruptcy Act).  Section 1301 of the Bankruptcy Act added Section 127(b)(11) to TILA - which is now being amended by the Credit CARD Act.  The Bankruptcy Act included an effective date of 18 months after the Bankruptcy Act was enacted OR 12 months after the Federal Reserve issued regulations to implement Section 127(b)(11).  That 12 month period never expired - Congress did not wait.  

The Federal Reserve's upcoming changes to Regulation Z included the Bankruptcy Act requirements - and were to become effective July 1, 2010.  However, the Credit CARD Act replaces the Bankruptcy Act requirements with new requirements that credit unions need to follow.  The Federal Reserve will need to amend its amendments to reflect the Credit CARD Act requirements under Section 201.

The amendments the Fed had adopted to implement the Bankruptcy Act can be found here - 12 C.F.R. 226.7(b)(12) [would have been effective July 1, 2010].  While the Fed's language will be amended to reflect the requirements of Section 201 of the Credit CARD Act, it could be useful as a general reference.  For example, the Fed's implementation of the Bankruptcy Act requirements included exceptions for HELOCs and overdraft lines of credit.  12 C.F.R. 226.7(b)(12)(v).  It is not clear if the Fed will use the same exceptions when it implements Section 201 of the Credit CARD Act. 

Section 201 of the Credit CARD Act

Congress included new, stronger disclosure requirements for periodic statements.  The Bankruptcy Act provisions would have allowed creditors to provide a generic repayment example and include a toll-free number that consumers could call to obtain their actual repayment time period.  The Credit CARD Act removes this option and requires the actual repayment information.

Minimum Payment Warning.  Periodic statements will need to include the following warning for members:

"Minimum Payment Warning: Making only the minimum payment will increase the amount of interest you pay and the time it takes to repay your balance."

Repayment Information.  Periodic statements must also include the following repayment information:

• The number of months (rounded to the nearest month) it would take for the member to pay the entire balance on the account, if the member makes only the minimum payment each month and conducts no further transactions.
• The total cost to the member, including interest and principal payments, of paying off the balance on the account by making only minimum payments.   

• The monthly payment amount that the member would need to make each month to repay the balance on the account in 36 months - assuming no further transactions are made on the account. 
• The total cost to the member, including interest and principal payments, of paying the balance off over 36 months (using the calculated monthly payment amount).    

• A toll-free telephone number that the member can call to receive information about accessing credit counseling services and debt management services. 

Which interest rate do credit unions use for the calculations?

The credit union would need to use the interest rate in effect on the date the disclosures are made (and assume the rate stays the same throughout the repayment period).  Thus, even if you have a variable-rate account - tied to an index that will most likely change in the future - your calculation would be based on the current, existing interest rate when the disclosures were made.

However, if the account has a stepped-rate or promotional rate with a lower interest rate, the calculation would need to take into consideration the future increased interest rate.  For example, if an account will have a 6% interest rate for 12 months, then raises to 9% - the repayment information would need to include this fact in the calculation.
   

Federal Reserve Regulations

The Fed will need to finalize amendments to Regulation Z which detail the form, manner and location of the required disclosures on the periodic statement.  The Fed's regulations must require credit unions to provide this information in a table format.  Model form G-18(F) from the Fed's earlier amendments (prior to the Credit CARD Act) provides some information on the probable location of the table on the periodic statement.  

Toll-Free Number for Credit Counseling and Debt Management

The Federal Reserve, along with Treasury, must issue guidelines by November 22, 2009 (6 months after Act) for the establishment and maintenance by creditors of a toll-free telephone number to provide information about accessing credit counseling and debt management services.  Remember, this toll-free number is one of the required disclosures listed above and will be located in or below the repayment information table.  

Which credit counseling and debt management companies?  The Fed's guidelines must flesh this out.  Section 201 requires that the toll-free number only refer consumers to "nonprofit budget and credit counseling agencies approved by a United States bankruptcy trustee."  

Effective Date.  The minimum payment warning and repayment information disclosures will need to be provided on statements after February 22, 2010.  The Federal Reserve will need to amend Regulation Z to provide further information and details.  

Credit CARD Act - Section 204

Posted by Steve Van Beek

Section 204 of the Credit CARD Act covers the posting of credit card agreements on the internet.  Section 204 amends Section 122 of the Truth in Lending Act by including subsection (d).

Posting Agreements.  Credit unions will need to post their credit card agreements on their website for viewing by the public.  If the credit union has numerous types of credit cards it offers its members, it appears each credit card agreement would need to posted separately.

Submission to the Federal Reserve.  In addition to posting their credit card agreements on their websites, credit unions will need to send their credit card agreements to the Federal Reserve.  The Federal Reserve must establish a central repository of all the credit card agreements it receives from creditors - including credit unions.  This central repository must be publicly available on the internet.

Regulations Needed.  The Federal Reserve in consultation with the federal banking agencies, including NCUA, and the Federal Trade Commission may issue regulations to specify the format for posting the agreements on the internet.  Additionally, the agencies have the authority to establish exceptions to the requirements to post credit card agreements on a creditor's website and send the agreements to the Federal Reserve.  

When would these exceptions exist?  The law gives the agencies the ability to provide exceptions where "the administrative burden outweighs the benefits of increased transparency, such as where a credit card plan has a de minimis number of consumer account holders."  

What is de minimis? It is unclear - but if you are a small credit union that will be greatly hampered by this requirement - make sure you submit your comments to the proposed rule from the Federal Reserve (and NCUA) making your case that a credit union of your size should be given an exception.  

Effective Date.  Section 204 does not include its own effective date - which implies it will become effective on February 22, 2010.  The Federal Reserves regulations could specify a different date in order to allow sufficient time for the Federal Reserve to set up a central repository.    

Credit CARD Act - Section 205

Posted by Steve Van Beek

Section 205 of the Credit CARD Act amends Section 612 of the Fair Credit Reporting Act (FCRA) by adding subsection (g).  Here is a link to the FCRA (prior to amendments). 

This section of the Credit CARD Act requires those advertising "free credit reports" to include a disclosure that free credit reports are available at AnnualCreditReport.com.  

Television and Radio Advertisements.  If the credit union advertises a "free credit report" in a TV commercial, the disclosure "This is not the free credit report provided for by Federal law" must be included in the audio and visual part of the commercial.  For radio advertisements, the same language must be provided orally.  

FTC Regulations.  Section 205 requires the Federal Trade Commission (FTC) to issue final regulations by February 22, 2010.  The FTC's regulations will need to address:

• The specific wording to be used in advertisements;
• For internet ads, whether the disclosure should be in the ad itself or on the website it directs consumers to (or both).     

If the FTC does not finalize regulations by February 22, 2010, advertisements - other than those over TV or radio - made public after February 22, 2010 would need to include the following disclosure: "Free credit reports are available under Federal law at: 'AnnualCreditReport.com'."  After the FTC regulates, advertisements would need to follow their final regulations. 

Note:  If the credit union advertises the credit reports allowed under Federal law - such as in a newsletter, on a periodic statement, or on its website - these requirements would not come into play as the credit union would be directing members to AnnualCreditReport.com.  

Bottom line: Congress did not like it when businesses used "free credit reports" as a gimmick to have consumers sign up for their credit monitoring services.  After February 22, 2010, businesses advertising these "free credit reports" will need to clearly disclose the fact that consumers are entitled to their credit reports from AnnualCreditReport.com without signing up for any services.  

Credit CARD Act - Section 203

Posted by Steve Van Beek

Hopefully everyone had a nice, safe holiday weekend.  Welcome back, we will move on to Title II of the Credit CARD Act - starting with Section 203 (mostly because it is shorter).  As a reminder, all previous posts on the Credit CARD Act can be found here.

Section 203 seems innocuous at first glance, however, if you offer credit cards with annual fees you will surely want to analyze the impact Section 203 will have on your credit card operations.

Here is Section 203 in full:

"SEC. 203. RENEWAL DISCLOSURES.

Section 127(d) of the Truth in Lending Act (15 U.S.C. 1637(d)) is amended--

(1) by striking paragraph (2);

(2) by redesignating paragraph (3) as paragraph (2); and

(3) in paragraph (1), by striking "Except as provided in paragraph (2), a card issuer" and inserting the following: "A card issuer that has changed or amended any term of the account since the last renewal that has not been previously disclosed or."

Ok, paragraph (2) of Section 127(d) will be removed as of February 22, 2010.  What impact will that have?  Here is current paragraph (2):

" (2)  SPECIAL RULE FOR CERTAIN DISCLOSURES.-- 

      (A)  IN GENERAL.--The disclosures required by this subsection may be provided-- 

        (i)  prior to posting a fee described in subsection (c)(1)(A)(ii)(I) or (c)(4)(A)(i) to the account, or 

        (ii)  with the periodic billing statement first disclosing that the fee has been posted to the account. 

      (B)  LIMITATION ON USE OF SPECIAL RULE.--Disclosures may be provided under subparagraph (A) only if-- 

        (i)  the consumer is given a 30-day period to avoid payment of the fee or to have the fee recredited to the account in any case where the consumer does not wish to continue the availability of the credit; and 

        (ii)  the consumer is permitted to use the card during such period without incurring an obligation to pay such fee."

This was a special rule for disclosing the renewal of credit cards - including the annual fee [described in subsection (c)(1)(A)(ii)(1) or (c)(4)(A)(i)].  Section 203 of the Credit CARD Act prohibits using the option after February 22, 2010.  Thus, if you current practice is to post an annual fee to a member's account and allow them 30 days to cancel the account and not pay the fee - you will need to adjust your practices going forward.

The general rule is found in Section 127(d)(1) and will be the only option available to credit unions (after February 22, 2010 when the "special rule" is removed from TILA).  Here is the general rule (which includes changes in paragraph (3) of Section 203):

"(d)  DISCLOSURE PRIOR TO RENEWAL.-- 

    (1)  IN GENERAL.--“A card issuer that has changed or amended any term of the account since the last renewal that has not been previously disclosed or” that imposes any fee described in subsection (c)(1)(A)(ii)(I) or (c)(4)(A)(i) shall transmit to a consumer at least 30 days prior to the scheduled renewal date of the consumer's credit or charge card account a clear and conspicuous disclosure of-- 

      (A)  the date by which, the month by which, or the billing period at the close of which, the account will expire if not renewed; 

      (B)  the information described in subsection (c)(1)(A) or (c)(4)(A) that would apply if the account were renewed, subject to subsection (e); and 

      (C)  the method by which the consumer may terminate continued credit availability under the account."

Remember that TILA is implemented by Regulation Z - and the Federal Reserve has regulations detailing the "general rule" and the "special rule" for renewal of credit card accounts - 12 C.F.R. 226.9(e).  The Fed will need to amend Regulation Z to reflect the removal of the "special rule" allowing delayed notice of the renewal of the credit card account (and imposition of the annual fee).

The upcoming open end changes to Regulation Z did not remove this "special rule" or "delayed notice."  Rather, Congress included this new requirement in the Credit CARD Act simply to remove the "special rule" they had placed in TILA in the past.  Sometimes, what Congress giveth - it taketh away.

If your credit union currently utilizes the "delayed notice" - you will want to make sure that you are ready for removal of the "special rule" and are compliant with the "general rule"  For information on the "general rule," see the Reg Z - 12 C.F.R. 226.9(e)(1).  In short, the general rule requires 30-days advance notice before the annual fee will be charge to the member's account and include information about how the member can terminate the credit card account without incurring the annual fee.  Note that Reg Z, 12 C.F.R. 226.9(e)(3), does allow this 30-day advance notice of the credit card renewal to be upon the periodic statement.   

Credit CARD Act: Section 106

Posted by Anthony Demangone

Now, on to Section 106 of the Credit CARD Act.

21-Days, and Late Fees.  As written, this section adds a new subsection to section 163 of the Truth in Lending Act. Subsection (a) of Section 163 indicates that a credit union may not treat any payment as late (i.e., they may not charge a late payment fee) unless the periodic statement is mailed or delivered at least 21 days before the payment due date. Note: This section, as written, applies to any “open end consumer credit plan” and is not limited to credit card accounts.  While most other provisions talk about a "credit card account under an open end lending plan," this section simply does not mention the words "credit card account."  And the effective date is August 20, 2009!

The effects of this provision are big.  Many credit unions use combined statements for lines of credit or for auto loans made under open-end plans.  When members open up their share account periodic statement, the open end information is there as well.  In addition, many credit unions permit members to choose their due date.  Add these two together, and you can see how credit unions are scrambling to comply.  In essence, credit unions would have had to review all their open end loans and make sure that they are sending periodic statements for those loans at least 21 days before the due date - if they wanted the right to charge a late fee.  We received scores of phone calls and emails on this very issue in the past week.

Where do we stand now?   This issue is still in flux.  Congressional intent was clarified to us during a number of meetings this week.  And Congressional and Federal Reserve leadership have been notified about our concerns.  Congressional staffers have indicated that this provision was meant to apply just to credit cards.  We'll continue to monitor this situation, and we'll see if we can clarify this even further where possible to protect credit union interests moving forward.  Keep in mind that the cleanest fix to this is a legislative fix.  Until (if) that happens, the language of the Credit CARD Act still remains. 

Due dates. Section 106 does more, though.  It adds subsection (o) to Section 127 of TILA. It requires that the payment due date for a credit card account must be the same day each month (i.e., the 18th of May, then the 18th of June, then the 18th of July, etc.)  The effective date for this provision is February 22, 2010.

Grace periods.  Finally, the section also pushes the existing Subsection (a) of Section 163 to Subsection (b), labels it "Grace Periods," and increases the requirement to 21 days (from the current 14).  If a card issuer offers a grace period, the card issuer must mail the periodic statement at least 21 days before the expiration of the grace period. In effect, the rule requires grace periods to be 21 days or longer. Note: Grace periods are not mandated by the Credit CARD Act. Rather, if a credit union offers a grace period – it must be 21 days or longer.  This goes into effect on August 20, 2009.

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We'll be back on Monday, folks.  Have a great 4th of July!  Enjoy the day, stay safe, and don't think about credit cards or Reg Z.  The only Zs you should think about are the Zzzzzzzs that occur after a extra helping of barbecue. 

Credit CARD Act - Section 109; Reg D Changes

Posted by Steve Van Beek

No, we have not forgot about Section 106 and the 21-day requirement.  We will be discussing Section 106 in detail in a future blog posting.

Section 109 - Consideration of Ability to Repay

Section 109 adds a new Section 150 to the Truth in Lending Act (TILA).  This new section requires that credit unions consider the member's ability to repay before opening a credit card account or increasing the credit limit on an existing account.  Section 150 reads as follows:

Sec. 150. Consideration of Ability to Repay.
"A card issuer may not open any credit card account for any consumer under an open end consumer credit plan, or increase any credit limit applicable to such account, unless the card issuer considers the ability of the consumer to make the required payments under the terms of such account."

Section 109 does not require the Federal Reserve to issue regulations.  However, it is likely the Fed will amend Regulation Z to provide further information and guidance to card issuers on the standards to use when considering a consumer's ability to repay.  This new section, Section 150 of TILA, has an effective date of February 22, 2010.  

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Regulation D.  Effective tomorrow - July 2, 2009 - credit unions can allow members to make up to six transfers out of their savings accounts regardless of the type of transaction.  In late May, the Federal Reserve amended Regulation D - removing the three/six distinction for withdrawals from savings accounts.  In the words of the press release:

"The Board has revised Regulation D's restrictions on the types and number of transfers and withdrawals that may be made from savings deposits. The final amendments increase from three to six the permissible monthly number of transfers or withdrawals from savings deposits by check, debit card, or similar order payable to third parties. Technological advancements have eliminated any rational basis for the distinction between transfers by these means and other types of pre-authorized or automatic transfers subject to the six-per-month limitation."

NAFCU has received quite a few inquiries from credit unions on this issue.  Let's cover a few of the issues.

No Change Required.  Credit unions are not required to amend their policies.  The credit union could continue to retain the three/six distinction for its share accounts.  However, this would be a business decision for the credit union.  When explaining the restrictions to its members, a credit union retaining the three/six distinction would no longer be able to state the "restrictions are required by Federal law" because Reg D allows six transactions regardless of type.  

Notification?  If the credit union makes a change to it policy, it does not appear that notification is necessary.  Even if not necessary - notification to the membership might be useful.  Notification could help prevent confusion and, since the change is beneficial to members, you may want to include the change in the periodic statement message.

Disclosures/System.  The credit union would want to make sure it's system can handle the changes before it notifies members of the changes or updates its disclosures.  Once your system can handle the changes, you could proceed to give members the additional flexibility in transactions allowed by the Fed under Regulation D.

NAFCU Statement Insert. NAFCU has created a statement insert on Regulation D that may be useful in explaining Regulation D issues to your members.  The insert "What You Need to Know About Transaction Limitations" explains Regulation D to members and why certain transactions are limited.

The statement insert may be useful in notifying members of the Reg D changes.  Additionally, if your credit union has a policy of notifying members when they exceed the allowed transaction threshold - including this insert with the notification could reduce member confusion as well as reducing the number of calls to the credit union's call center.  An order form is available here.  

Please forgive me, but I need to include this disclaimer:  "These Inserts are property of NAFCU and may not be reproduced without authorization."

 

Credit CARD Act - Sections 105, 107 & 108; NCUA LCU

Posted by Steve Van Beek

Today, we are going to knock out a few smaller sections of the Credit CARD Act.  

Section 105 - Subprime or "Fee Harvester" Cards

First off, can you tell Congress did not like this practice?  "Fee harvester" is not a term used to describe a consumer-friendly product.  Few credit unions dabble in these types of products, so take a quick look at your credit cards to see if they would be covered.

Section 105 adds subsection (n) to Section 127 of TILA.  This section requires that if a new credit card account adds fees that equate to more than 25% of the available credit limit - those fees must be paid for in another payment form (i.e. can not be added to the credit card at issuance).  This section stems from practices by some subprime card issuers who would open a credit card account with a credit limit of $300 that already had $250 in fees on the card - giving the consumer on $50 in available credit and accruing interest on the $250 in fees.  Thus, the term "fee harvester."  

This section is a bit confusing and it seems the Fed would issue regulations to clarify and prevent evasion of this subsection.  For FCUs, do not forget about Section 706.26 of NCUA's regulations covering Unfair or Deceptive Acts or Practices (UDAP) - effective July 1, 2010.  The restrictions are more stringent and detailed.  If you offer a credit card like this for some reason, be sure to check out UDAP (see especially page 129 as well as pages 142-145 of the official staff commentary).

Section 107. Enhanced Penalties

This section strengthens the penalties section of TILA by authorizing fines of twice the amount of any finance charge, with a minimum fine of $500 and a maximum of $5,000, in penalties for individual actions on an open end consumer credit plan.  The section also allows higher penalties if a "pattern or practice" of failures can be established.  

Section 108. Clerical Amendments

This section adds the term "open end consumer credit plan" to the existing definition of "open end credit plan" under Section 103(i) of TILA.  The definition remains substantially the same, but the amendment clarifies that the terms "open end consumer credit plan" and "open end credit plan" are interchangeable. 

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NCUA recently issued Letter to Credit Unions 09-CU-13 which discusses the upcoming hurricane season and pandemic planning.  The letter encourages credit unions to review and update their disaster preparedness and response plans.  The Letter includes links to various guidance documents on disaster preparedness and business continuity planning. 

Section 104; NCUA Letter to Credit Unions

Posted by Anthony Demangone

I hope everyone had a nice weekend.  Now, back to the Credit CARD Act daily grind.

Section 104 of the Credit CARD Act does a number of things.

5 p.m. Cutoff.  Section 104 amends Section 164 of the Truth in Lending Act to mandate that if a member makes a payment by 5 p.m. on their due date, you'd need to credit the payment as of that date.  To clarify: There's no requirement to post payments on the day they are received, but payments received by 5 p.m. on the due date must be credited on the due date.  Here's what Section 164 will look like after February 22, 2010:

 164. Prompt and fair crediting of payments.(a) IN GENERAL - Payments received from an obligor under an open end consumer credit plan by the creditor shall be posted promptly to the obligor's account as specified in regulations of the Board. Such regulations shall prevent a finance charge from being imposed on any obligor if the creditor has received the obligor's payment in readily identifiable form by 5:00 p.m. on the date on which such payment is due in the amount, manner, and location indicated by the creditor to avoid the imposition thereof.

This section seem to simply create a 5 p.m. cut-off, although arguably only for the due date. What if you close before 5?  Perhaps the Federal Reserve will clarify expectations when they issue regulations to implement the Act. 

Payment allocation.  Section 104 of the Credit CARD Act also requires that credit unions allocate any payment above the minimum periodic payment to the balance with the highest APR. Note: This is a stronger requirement than UDAP will require on July 1, 2010.  (UDAP would have given the credit union the option of pro rata application of payments.) To illustrate: if a member has a minimum payment of $50 and makes a $300 payment – the $250, in excess of the minimum, must be applied to the balance on the card with the highest APR. There are also other restrictions for certain deferred interest arrangements.

So, scrap what UDAP required.  Make sure your system (and the folks that program it) is ready for this requirement.  If they were shooting for July 1, 2010, using UDAP's requirements as a framework, they'll be late and off the mark. 

Changes to mailing address.  Additionally, if the credit union changes its mailing address or method of handling a member’s payments, it may not charge a late fee for 60 days – if the mailing address change causes a material delay in the crediting of a member’s payment. If a credit union provides two options for payments (such as an old mailing address and a new mailing address) during a transition period, the change would most likely not cause a material delay. The section is intended to prevent card issuers from switching their method of accepting payments to force consumer payments into being late (and, thereby, collecting the fee income).

These provisions go into effect on February 22, 2010.

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NCUA has release NCUA Letter to Credit Union 09-CU-12 to share interagency exam procedures on credit issued to military personnel and their dependents.  You can access it here.  The letter has a number of attachments, which should give you valuable information about the DoD rule, as well as the SCRA.