Posted by Steve Van Beek
Today, we are going to turn to Section 103 of the Credit CARD Act.
A quick reminder - all previous posts on the Credit CARD Act can be found under the category "CreditCardReform" on the right hand side of the blog's mainpage. Or by clicking this link.
Section 103 - Use of Terms Clarified
Section 103 adds subsection (m) to Section 127 of the Truth in Lending Act (TILA). This subsection places limitations on using the term "fixed" to describe a credit card account. A credit union may only use the term "fixed" to refer to an APR that will will not change or vary for any reason over the period clearly disclosed in the terms of the account. This means if a credit union offers a "Fixed 9.99% APR" credit card and does not specify a time period for the 9.99% APR to expire - the credit union will not be able to change the APR on the account. Never.
The credit union could use the term "fixed" if it specifies the time period the APR will not change - for any reason. Thus, you could offer a credit card that was "Fixed 11.99%" for the first two years after which it would be a variable account at the prevailing APR (based on a disclosed margin and index) at the end of the two years. Remember, Section 172(b) of TILA - added by Section 101 of the Credit CARD Act - requires promotional periods to be at least 6 months long.
The Federal Reserve's consumer testing indicated that consumers believed the word "fixed" meant that it could never change. Here is the explanation from the Fed's open-end amendments to Regulation Z (see page 11 of the 255 page PDF for more information - caution large document):
"Advertising ‘‘fixed’’ rates. Creditors sometimes advertise the APR for open end accounts as a ‘‘fixed’’ rate even though the creditor reserves the right to change the rate at any time for any reason. Consumer testing indicated that many consumers believe that a ‘‘fixed rate’’ will not change, and do not understand that creditors may use the term ‘‘fixed’’ as a shorthand reference for rates that do not vary based on changes in an index or formula. Under the final rule, an advertisement may refer to a rate as ‘‘fixed’’ if the advertisement specifies a time period the rate will be fixed and the rate will not increase during that period. If a time period is not specified, the advertisement may refer to a rate as ‘‘fixed’’ only if the rate will not increase while the plan is open."
As a result, the Federal Reserve had included this language in its upcoming amendments to Regulation Z:
"(f) Misleading terms. An advertisement may not refer to an annual percentage rate as "fixed," or use a similar term, unless the advertisement also specifies a time period that the rate will be fixed and the rate will not increase during that period, or if no such time period is provided, the rate will not increase while the plan is open." 12 C.F.R. § 226.16(f). This section will be effective July 1, 2010 for all open end (not home-secured) consumer credit plans. This link will take you to the language of Section 226.16 of Reg Z as it will read after July 1, 2010.
Thus, you may want to gather your marketing staff and do a review of your current and planned open end advertisements. How are you currently using the word "fixed"? Do you specify a time period that the account will be "fixed"?
***
After 4 straight weeks of being canceled due to inclement weather, the NAFCU Nationals softball team hit the field last night. It wasn't the ideal situation as the NAFCU Nationals emerged from their month-long hiatus to face the league-leading Diamond Cutters - who were 7-1 coming into last night's games.
The first game - could have been better. NAFCU struggled to get the bats going early and ended up losing the first game 15-3. The second game was a much better game and the Diamond Cutters were given a run for their money. NAFCU got behind 2-7 early but chipped away with 2 runs in the top of the 4th inning making it 4-7. After three straight outs, the NAFCU bats caught fire in the top of the 5th with every batter hitting in the inning - the end result being an 8 run inning and a 12-7 NAFCU lead. However, the Diamond Cutters proved why they were leading the league and came through with 6 runs in the bottom of the 5th for a 12-13 victory. Despite the loss, the 2nd game was the best the NAFCU Nationals have played as a team and bodes well for the rest of the season.
The current record is 3-7 with a late season push needed to make the playoffs. We can do it.
The first game - could have been better. NAFCU struggled to get the bats going early and ended up losing the first game 15-3. The second game was a much better game and the Diamond Cutters were given a run for their money. NAFCU got behind 2-7 early but chipped away with 2 runs in the top of the 4th inning making it 4-7. After three straight outs, the NAFCU bats caught fire in the top of the 5th with every batter hitting in the inning - the end result being an 8 run inning and a 12-7 NAFCU lead. However, the Diamond Cutters proved why they were leading the league and came through with 6 runs in the bottom of the 5th for a 12-13 victory. Despite the loss, the 2nd game was the best the NAFCU Nationals have played as a team and bodes well for the rest of the season.
The current record is 3-7 with a late season push needed to make the playoffs. We can do it.
Comments