Posted by Anthony Demangone
(B)No dollar amount associated with violation. A card issuer must not impose a fee for violating the terms or other requirements of a credit card account under an open-end (not home-secured) consumer credit plan when there is no dollar amount associated with the violation. For purposes of paragraph (b)(2)(i) of this section, there is no dollaramount associated with the following violations:(1) Transactions that the card issuer declines to authorize;(2) Account inactivity; and(3) The closure or termination of an account.
Inactivity fees. Section 226.52(b)(2)(i)(B)(2) prohibits a card issuer from imposing a fee based on account inactivity (including the consumer’s failure to use the account for a particular number or dollar amount of transactions or a particular type of transaction). For example, § 226.52(b)(2)(i)(B)(2) prohibits a card issuer from imposing a $50 fee when a consumer fails to use the account for $2,000 in purchases over the course of a year. Similarly, § 226.52(b)(2)(i)(B)(2) prohibits a card issuer from imposing a $50 annual fee on all accounts but waiving the fee if the consumer uses the account for $2,000 in purchases over the course of a year.
Consumer groups and individual consumers requested that the Board clarify that a card issuer cannot circumvent this (inactivity fee) prohibition by, for example, imposing a $50 annual fee on all accounts but waiving the fee if the consumer uses the account for $2,000 in purchases over the course of a year. In contrast, industry commenters argued that such arrangements should be permitted because they are no different than “cash back” rewards. Industry commenters also argued that inactivity and closed account fees should not be treated as penalty fees because the consumer has not violated the terms of the cardholder agreement by failing to use the account for a certain amount of transactions or by closing the account. However, as discussed above with respect to comment 52(b)-1, the Board believes that these fees are properly subject to § 226.52(b) because they are fees imposed for violating other requirements of the account. And other incentives provided to encourage consumers to use their accounts. Unlike other types of incentives, however, this arrangement is inconsistent with the intent of § 226.52(b)(2)(i)(B)(2) because only consumers who do not engage in the requisite level of account activity are ultimately responsible for the fee. Thus, in these circumstances, there is no meaningful distinction between the annual fee and an inactivity fee. Accordingly, comment 52(b)(2)(i)-5 clarifies that this type of arrangement is prohibited. The Board notes that this guidance should not be construed as prohibiting “cash back” rewards or similar incentives commonly offered by card issuers to encourage account usage.
A few parting thoughts:
- The August 22 rules only apply to credit cards.
- You may want to review your credit card fee arrangements to see if you charge fees in this manner. If you do, you'll need to make some adjustment by August 22.
- As you can see, this rule is rather tricky. Don't forget about our July 14th webcast on the subject.