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."

 

Comments

[Jackie MacMannis - Tower Federal Credit Union]

Hello, compliance folks. I dug around in the blog to see if you had covered credit limit increases for credit cards and if we will be prevented from underwriting these increases because of the open-end rule. The context is automated credit limit increases that in the past looked at delinquencies on member's current account and if they were overlimit. Any help you can provide would be appreciated. Thanks!