Posted by Anthony Demangone
This week, I want to focus on the upcoming changes to NCUA's Truth in Savings regulation. Those changes require additional disclosure requirements for periodic statements and automated systems. But today, I want to deliver a brief history lesson and the current state of affairs for overdraft protection programs.
The regulation. First, there is a regulatory foundation to our ability to offer overdraft protection programs. You'll find it buried within NCUA's general lending regulation, at 12 C.F.R. 701.21(c)(3). I haven't researched exactly when that got on the books, but it predates my arrival at NAFCU.
Please, pretty please. Roughly 5 years ago, consumer groups started grumbling about overdraft protection programs. In 2005, NCUA and others issued guidance and some regulatory changes. First, NCUA issued Letter to Credit Unions 05-CU-03, which provides some guidance and best practices. They also issued 05-CU-21 later in the year to share an AIRES questionnaire with credit unions concerning ODP programs. Access both here. That year, NCUA also amended its Truth in Savings regulation. It added 707.11, which address ODP programs, and it added some guidance in other areas as well. Those changes only affected credit unions that advertised their ODP programs. All of these changes really didn't affect how you structured your ODP programs. They simply affected or suggested how you were to market them. Bills were drafted that would greatly limit our ability to charge fees for ODP programs, but these bills never made it into law.
Enough, already. In 2009, things changed. With Democrats firmly in control of the White House, Senate and House of Representatives, consumer group arguments against ODP programs found receptive ears. A number of bills were drafted that would curtail the number of ODP fees we could charge or the amount of such fees. To date, those bills are still percolating. Regulators also kicked into high gear, amending two regulations to address ODP concerns. NCUA and others amended their "Truth in Savings" regulations that mandates increased ODP disclosures for all institutions. And Regulation E was amended to prevent certain overdraft fees without an affirmative "opt in" from affected consumers. Will the regulatory changes blunt the legislative momentum of the various ODP bills on the Hill? It is hard to say for sure.
What are the lessons here? I'm not sure there are any clear ones. But here's a possibility. When consumer groups complain about perceived unfair practices, whether they involve credit cards, ODP, or mortgages, there will be those on the Hill that will listen. If you derive income from any practice that consumer groups consider to be unfair - even if you do it above board and with a fair price - that income is at risk. When Congress moves to reform, they do not use scalpels. They use saws and axes. We often get caught up in Congressional reforms, even as legislators admit that we are not part of the problem.
Tomorrow, we'll start looking at the NCUA changes in detail.
Last week, the OTS released a CEO Letter that appears to be the first guidance issued by a regulator about the Credit CARD Act fix to the 21-day dilemma. Of note:
As originally enacted, § 163(a) of TILA applied not only to credit cards, but to all open end credit, including home equity lines of credit (HELOCs). Because HELOCs are home-secured, savings associations that offer them must also comply with an OTS rule that prohibits assessing a late fee if the borrower’s payment is received within 15 days after it is due.2 To accommodate this rule, many thrifts have drafted their HELOC agreements to require payment by the 15th of the month, but defer charging a late fee until the 30th day. Since contract terms are not easily changed, it has been difficult for associations to adjust their practices to comply with the requirement that consumers be given 21 days to remit payment. The correction discussed above means that this requirement will only apply to credit card accounts.
However, thrifts should note that TILA § 163(b) remains unchanged. Pursuant to § 163(b), when an open end creditor provides a grace period permitting consumers to repay without incurring a finance charge for a period of time after payment is due, the grace period must last at least 21 days. Moreover, the creditor must transmit periodic statements to consumers at least 21 days before their payment is due. Although HELOCs are not typically structured to include a grace period, thrifts should be aware that if they provide one, the requirements of TILA § 163(b) will apply. (Emphasis added.)