Written by Steve Van Beek
Over the past weeks and months many credit unions, their vendors, their attorneys, their trade associations and many others have been struggling with trying to determine whether a 45-day change-in-terms notices is required solely due to a technical change to Regulation Z. This blog post will try to provide an overview of this situation and where things stand. Unfortunately, there is not a perfect answer as the CFPB will not provide formal guidance on this situation.
Devil is in the Details. The Dodd-Frank Act transferred authority for Regulation Z from the Federal Reserve to the Consumer Financial Protection Bureau. This meant that the CFPB has authority for interpreting Regulation Z as well as providing information to consumers regarding credit cards. To implement its authority under Reg Z, the CFPB republished Reg Z under 12 CFR 1026. During this republishing, the CFPB indicated it was making solely technical changes and there would be no substantive changes. However, as we all know - the devil is in the details.
CFPB Website. One of the changes during the republishing is that the CFPB website needs to be used by credit unions in their credit card disclosures after January 1, 2013. This requirement comes from 12 CFR 1026.6(b)(2)(xiv) of Reg Z:
"(xiv) Web site reference. For issuers of credit cards that are not charge cards, a reference to the Web site established by the Bureau and a statement that consumers may obtain on the Web site information about shopping for and using credit cards. Until January 1, 2013, issuers may substitute for this reference a reference to the Web site established by the Board of Governors of the Federal Reserve System."
Ok, this seems simple. In fact, we blogged on this as early as January 10th of 2012. Credit unions have been making these updates throughout the year and most are ready to go on their disclosures for new credit card disclosures.
Complicated, Interconnected Regulations. However, this simple change also potentially triggered a change-in-terms notice - to existing credit cardholders - because of the complexity of Regulation Z. Here is the requirement for when a change-in-terms notice is triggered - from 12 CFR 1026.9(c)(2):
"(2) Rules affecting open-end (not home-secured) plans. (i) Changes where written advance notice is required. (A)General. For plans other than home-equity plans subject to the requirements of § 1026.40, except as provided in paragraphs (c)(2)(i)(B), (c)(2)(iii) and (c)(2)(v) of this section, when a significant change in account terms as described in paragraph (c)(2)(ii) of this section is made, a creditor must provide a written notice of the change at least 45 days prior to the effective date of the change to each consumer who may be affected." (Emphasis added).
Thus, the analysis needs to jump to 1026.9(c)(2)(ii) to determine which changes are "significant changes in account terms":
"(ii) Significant changes in account terms. For purposes of this section, a “significant change in account terms” means a change to a term required to be disclosed under § 1026.6(b)(1) and (b)(2), an increase in the required minimum periodic payment, a change to a term required to be disclosed under § 1026.6(b)(4), or the acquisition of a security interest." (Emphasis added).
So - this is where things get weird. The disclosure of the CFPB's website is required by 1026.6(b)(2)(xiv) which would bring it under the definition of a "significant change in account terms." This is even though the credit union did not make the change and the disclosure of the CFPB website is not actually a "term" of the account that impacts members (rather, it is a mandated disclosure).
Is There an Applicable Exception? Thus, a strict reading of Regulation Z indicates that this switch to the CFPB's website would be a "significant change in account terms." But, does this trigger the change-in-terms notice? It doesn't seem like it would as the credit union didn't make this change. Congress did. Dodd-Frank transferred authority to the CFPB and this required the CFPB to change Regulation Z and include their website - rather than the Federal Reserve's - under 1026.6(b)(2)(xiv). Why should credit unions have to send notices to their existing cardholders of this change? Further, this disclosure of the CFPB's website is only required in the application/solicitation and account opening disclosures - why would it need to be disclosed to existing members when it is changed?
Well, there is an exception in the official staff commentary that has been pointed out by quite a few credit unions, vendors, attorneys, and others as indicating the change-in-terms notice would not be required. It comes from the staff commentary of 1026.9(c)(2)(v):
"9(c)(2)(v) Notice not Required
1. Changes not requiring notice. The following are examples of changes that do not require a change-in-terms notice:
i. A change in the consumer's credit limit except as otherwise required by § 1026.9(c)(2)(vi).
ii. A change in the name of the credit card or credit card plan.
iii. The substitution of one insurer for another.
iv. A termination or suspension of credit privileges.
v. Changes arising merely by operation of law; for example, if the creditor's security interest in a consumer's car automatically extends to the proceeds when the consumer sells the car." (Emphasis added).
This sounds great. The argument is that the change to the CFPB's website is a "change arising merely by operation of law." Dodd-Frank transferred authority to the CFPB and that is the only reason why this technical change occurred. Done deal, right?
Informal Agreement. I've talked with CFPB staff on this issue (as have many others) and CFPB staff agrees that this "operation of law" exception applies and credit unions do not need to send the change-in-terms notice in this situation. Unfortunately, the CFPB staff is unwilling to put their opinions in a formal writing. This means that credit unions are left with an informal agreement that a change-in-terms notice is not required.
Documentation is Key. Because the CFPB will not put their opinion in writing, it is important that credit unions document their decision-making as to why they did not send the change-in-terms notice in this situation. Remember, the CFPB staff is not examining and auditing your credit union - so be sure to have documentation of your decision not to send the notice in case this issue comes up.
Notice Already Sent. Of course, if your credit union has already decided to send the notice - you are in a great position as you can move on to many other compliance issues facing your credit union. Additionally, if you have the wheels in motion to get the notice out to your members in the near future - there is nothing wrong with sending the notice.
Risk-Averse. If your credit union decides it doesn't feel comfortable relying on an informal (2nd-hand) agreement from the CFPB staff - by all means send the notice. And, then document why you sent the notice and the burden caused by the CFPB's unwillingness to put their opinion in writing.
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