NAFCU Compliance Blog

President Signs H.R. 3606 into Law

Posted by Anthony Demangone

Earlier today, President Obama signed H.R. 3606 into law, which provides a technical fix for the 21-day issue by limiting its affects to credit card accounts.  Let me know when you're done clapping.

OK.  Here's what that did.  With a stroke of the pen, the Truth in Lending Act has been amended.  The Fed will need to update regs and guidance to implement this, and we can expect that information when the Fed issues the final rule to implement the portions of the Credit CARD Act due to go into affect on February 22, 2010.  Those rules should come by year's end.  But no matter how long the Fed takes, the law was changed the moment President Obama's signature graced the document.

I cannot say with 100 percent certainty how the Fed will address this issue.  There always is a bit of haziness until you see what the final regs say.  Can credit unions that moved due dates simply move them back without some sort of notice?  I wouldn't think so.  But again, we'll have to wait for the final rule to know what the Fed really thinks about all of this. In any event, this sure is wonderful news. 

And with the news, it signals the end of one of the strangest chapters in my life as a compliance professional.

Regulation Z Proposal: Online Disclosures of Credit Card Account Agreements

Posted by Anthony Demangone

First, please accept my apology for such a post on a Friday. 

As you ready your credit union to comply with the massive changes to Regulation Z's open-end rules, do not put off today's topic too long.  While the online disclosure of credit card account agreements sounds like it could be simple...it simply is not.  In short, you'll need to post your credit card agreement on your website. And you'll have to submit them to the Fed as well.  The Fed will create a website where people can go to view all the credit card agreements that exist in American. 

Yee-haw.  Pop me some popcorn.  I can't wait.

In today's post, I wanted to give you a taste of what is involved.  For painful, excruciating detail, please refer to this document. 

• First, note that the Fed created a "small issuer" exemption.  If your credit union has less than 10,000 credit card accounts open (including dormant accounts), you are not subject to the requirements.
• The new requirements will be housed at 12 C.F.R. Part 226.58.
• Even if your agreements do not include pricing (i.e., APRs), you'll need to provide this information to the Fed, along with applicable fees.
• You only need to upload agreements to the Fed that you currently offer to the public.
• You'll need to register with the Fed, and upload agreements electronically to them 4 times a year.  The Fed indicates that it will provide specific details on how to do this in the near future. 
• While the quarterly submissions are generally due no later than the first business day after January 31, April 30, July 31, and October 31, there is special timing for the first two submissions.  The first submission would be due February 22, 2010, and the next one would be due August 2, 2010.
• Here's the rub.  Or one of them, anyway.  If you change your agreement, including pricing or provisions) you need to update the agreement on the next quarterly submission.  And if an agreement no longer is offered, you'll need to notify the Fed about that as well.
• Much of the specifics are outlined in Appendix N of Regulation Z.

As I said, I apologize for sending this to you on a Friday.

***

We are reworking our regulatory compliance newsletter.  After we began the process, we realized that we had a terrible name.  What happens when you let attorneys name a newsletter?  Well, we called ours...The NAFCU Regulatory Compliance Newsletter.  Pretty creative, huh?

Well, what should we call it?  We're asking you, NAFCU members, to come up with a new name for the new newsletter.  I'll give some sort of award for two entries: 1) one for the name we end up using; and 2) one for the name that makes me laugh the hardest.

Send ideas to compliance@nafcu.org.

***

Have a great weekend, everyone!  (Even you Buckeye fans.)

Reg Z Proposal: Late Payment Disclosures

Posted by Sarah Loats

Today we'll continue through the Regulation Z proposal and focus on late payment disclosures for periodic statements. For those of you familiar with the Federal Reserve's January 2009 rule, effective July 1, 2010, the proposed rule is revising that final rule in order to implement the new Credit CARD Act amendments to TILA. Here is the language from the proposed rule that relates to this provision.

Here are some items of note from the proposal:

- The requirements apply only to credit cards.

-The due date is required on the statement regardless of whether a late fee or penalty rate would be assessed.

-The due date disclosed must be the same date each month. A proposed comment clarifies that this means the same numerical day each month (i.e., the 25th of each month). Another comment provides that the credit union would be able to change the due date from time to time, such as in response to a member request, provided the new due date will be same date each month.

- Proposed staff comments explain that the date to be disclosed is the due date according to the "legal obligation between the parties" and that a courtesy period should not be taken into account.

-If the due date falls on a day the credit union does not accept payments, it must still reflect that day as the due date. An example provided in the proposed rule - the member's due date is on the 4th of each month, and the credit union does not accept payments by mail on July 4th. Under another portion of the proposal, the credit union would have to accept a payment received by mail on July 5th as timely, but it must still disclose the 4th as the due date.

The portion of the proposed rule relating to the formatting of the late payment (and repayment) disclosures can be found here.

An excerpt from the proposal summarizes the format requirements nicely:

Consistent with TILA Section 127(b)(12), as revised by the Credit Card Act, the Board proposes to retain the requirement in § 226.7(b)(13) that credit card issuers disclose the payment due date on the front side of the first page of the periodic statement. In addition, credit card issuers would be required to disclose the amount of any late payment fee and penalty APR that could be triggered by a late payment in close proximity to the due date. Also, the due date, late payment fee, penalty APR, ending balance, minimum payment due, and the repayment disclosures required by proposed § 226.7(b)(12) must be grouped together. See § 226.7(b)(13). The Board believes that these format requirements fulfill Congress’ intent that the due date and late payment disclosures be grouped together and be disclosed in a conspicuous location on the periodic statement.

Regulation Z Proposal: Substitute or Replacement Card Disclosures

Posted by Anthony Demangone

The Regulation Z proposal tackles a number of sticky issues.  The issue of substitute and replacement cards is one of them.  A member may request additional features to a credit card account that will require a change in the disclosures.  So, must you send a change in terms or a set of brand new initial disclosures?  Here's what the Fed is thinking.

    The Board understands that, when an existing cardholder requests new features or benefits, disclosure of the new terms pursuant to § 226.6(b) may be preferable because the cardholder generally will not want to wait 45 days for the new terms to take effect (as would be the case if notice were provided pursuant to § 226.9(c)(2)). Thus, this comment is intended to provide card issuers with some flexibility regarding whether to treat the substitution or replacement as the opening of a new account (subject to § 226.6(b)) or a change in the terms of an existing account (subject to § 226.9(c)(2)).
    However, the Board does not intend to permit card issuers to circumvent the disclosure requirements in § 226.9(c)(2) by treating a change in terms as the opening of a new account. Accordingly, the comment would further state that whether a substitution or replacement results in the opening of a new account or a change in the terms of an existing account for purposes of the disclosure requirements in §§ 226.6(b) and 226.9(c)(2) is determined in light of all the relevant facts and circumstances.  74 Fed. Reg. 54131.

The Fed proposes that creditors look at the following factors:

1. Does the member get a new credit card?
2. A new account number?
3. New features?
4. Does the card work at a greater or lesser number of locations after the change?
5. Was it done on an individual basis?
6. Does the card become a different type of card (does a charge card become credit card, for example)

When most of these facts are present, the substitution or replacement is really the opening of a new account, for which new account disclosures are required.  Note: the Fed is looking for comments on this issue.

If you want to read more about this issue, here's the part of the proposal that deals with this issue.

***

I just realized that is is November.  Where did this year go? 

21-Day Fix on to President's Desk; Reg Z Proposal: Timely Settlement of Estates

Update by Anthony Demangone 7:55 p.m., Thursday evening

I just received an email from our lobbying dynamo, Brad Thaler.   Just minutes ago, the U.S. Senate passed H.R. 3606 by unanimous consent. This bill would make a technical correction to the Credit CARD Act to limit the 21-day requirements to credit cards, instead of all open-end lending.  The legislation now goes to President Obama's desk.  He is expected to sign it within days.

Many thanks to all of you for your help in getting this legislation to this point. We'll update you on any developments.

***

Posted by Steve Van Beek

Today's blog will be a little lighter in content as we will take a look at a less controversial provision of the Fed's Reg Z proposal.  Section 226.11(c) requires Timely Settlement of Estates.  The summary of the provision lays out the main changes:

"E. Timely Settlement of Estates 

The Credit Card Act directs the Board to prescribe regulations requiring creditors to establish procedures ensuring that any administrator of an estate can resolve the outstanding credit card balance of a deceased accountholder in a timely manner. The proposed rule would impose two specific requirements designed to enable administrators to determine the amount of and pay a deceased consumer’s balance in a timely manner. First, upon request by the administrator, the creditor would be required to disclose the amount of the balance in a timely manner. Second, once an administrator has made such a request, the creditor would be required to cease the imposition of fees and charges on the account (including the accrual of interest) so that the amount of the balance does not increase while the administrator is arranging for payment."

Section 226.11(c) is broken down into three subsections.

• (1) General Rule. Creditors need to establish reasonable procedures to ensure administrators or executors of estates can determine the amount of and pay any balance on the credit card account. 

• (2) Fees and Charges. After receiving a request by an administrator or executor, the credit union would not be able to charge interest or late fees to the account.  There is an exception for a joint credit card accounts.       

• (3) Timely Statement of Balance. Upon request from an administrator or executor, the credit union would need to provide a statement balance within a reasonable period of time.  The proposal considers 30 days, from the date of the request, to be reasonable.  

 The staff commentary also provides examples and additional information (see pages 12-13).   

Have a great weekend!  I'll be spending my Saturday moving and hoping the rain holds off (currently 30% chance - but on moving day that might as well be 75%).  

Regulation Z Proposal: 21 Day Comment Clarification; NAFCU Online Training Free Trial

Posted by Anthony Demangone

When I look back on 2009, I might call this the year that lacked 6 words.  Had the Credit CARD Act contained "For a credit card account under..." much of our collective frustration could have been avoided.  And if I had hair, I would not be bald.

In any event, I thought I'd take a moment to recap where we are on the 21-day issue.

1. In May, the Credit CARD Act required us to mail or deliver periodic statements at least 21 days before the due date for all open-end loans in order to be able to treat those payments as late for any reason.

2. On July 15, the interim final rule that implemented the August 20 provisions of the Credit CARD Act.  And the rule did not stray from the Act.  We had to stick to the 21-day timing requirement, although the rule did create a "temporary" solution that would allow us to add a disclosure to our periodic statements if we could not fully comply with the 21-day requirement.

3. On September 29, the Fed issued a proposal to implement the February 22, 2010 provisions of the Credit CARD Act.   In the proposal, the Fed decided to republish the various proposals that it had issued recently that touch upon open-end lending.  A new comment clarifies the 21-day issue.  In short, it clarified the penalty for not complying with the 21-day proposal.  It seems to say that the prohibition against treating a payment late for any reason only lasts for 21 days after the mailing of a periodic statement.  This guidance appears to contradict what the Fed had issued in the interim final rule in July.

4. Just a few weeks ago, Congressman Jack Welch (D-VT) introduced a bill that would create a technical fix to alter the Truth in Lending Act to limit the 21-day provision to credit card accounts.  Last week, it seemed that the U.S. Senate was close to moving it on to President Obama's desk.  But this has not happened yet.

So we wait.

***

Next week, I will host a free go-to-webinar to highlight NAFCU's online training program, designed for volunteers and new employees. Specifically, the webinar will take place next Tuesday, November 3, from 2 to 3 p.m., EST.  You can sign up for the register using the link above.

I'll go over the ins and outs, and those who sign up will receive a free trial to the training program so that you can kick the tires.  There's a good BSA module within the training program, so this may be something that your credit union could use. 

Seminar; ODP; Interest Rate Freeze?

Posted by Anthony Demangone

First of all, hats off to Sarah Loats.  Last week, Steve and I were in Charleston for our annual regulatory compliance seminar.  While we learned, spoke and ate our way through Charleston, Sarah held down the fort and wrote a number of blog posts during a busy week.  Thanks, Sarah.

I thought the seminar went very well, as our speakers and the content were both top-notch.  And there were roughly 180 attendees from around the country soaking it all in.  If you haven't been to a NAFCU compliance conference (we do a certification school in the Spring and a seminar in the Fall), please consider it.  Here's a list of next year's conferences.

***

First, overdraft.  As Sarah pointed out, Senator Dodd and Rep. Maloney introduced legislation in the Senate and House that would greatly limit our ability to collect overdraft protection fees.  When I announced this news at seminar, you could feel the air leave the room.  Some of you have asked what can be done to counter the legislation.  Here's a thought: I wonder if any credit unions keep "thank you" letters from members who have used and enjoyed the credit union's overdraft protection program.  If you have such letters, it might be something to share with your representative and senators.  Of course, you'd want to redact any personal member information or seek their approval before sharing. 

***

I thought the next item was some cruel joke.  It wasn't.  Yesterday, Senator Dodd introduced legislation that would immediately freeze credit card interest rates on existing balances.   I don't have a ton of details on this bill yet.  At press time (when I'm typing this) it hadn't been introduced yet.  It is my understanding that the freeze would only last until the Feb. 22 provisions of the Credit CARD Act take affect. But let me go out on a limb. I don't like it.  Not one little bit. 

Reg Z Proposal: Payment Allocation

Posted by Sarah Loats

In my haste to put up a blog posting for last Friday, I left out the good news. I threw in a last second sentence about the House Financial Services approving a bill to move the deadline for the Credit CARD Act to December 1st, failing to mention that it would exempt from this earlier deadline card issuers with less than 2 million credit card accounts. Here's NAFCU's news story about this. That'll teach me to post something in a hurry. Maybe.

***

You may remember that the UDAP rule contained requirements regarding the allocation of payments in excess of the minimum payment. The Credit CARD Act rule contains a similar, but stronger rule. When different rates apply to different balances on a card, Regulation Z will require that any payment amount in excess of the minimum payment be allocated to the balance with the highest APR.

There are a few items of note:

• This rule does not regulate how the minimum payment must be applied.

• If a credit card account has a balance subject to a deferred interest rate program, that balance should be treated as having a 0% APR during the deferral period for payment allocation purposes.

• There's a wrinkle to this deferred interest rule. The proposed rule requires that the credit union must allocate any payments in excess of the minimum payment first to that deferred interest balance for the two billing cycles immediately preceding expiration of the deferred interest period.

Confused yet? The proposed staff commentary includes some good examples explaining this rule.

Reg Z Proposal: Crediting of Payments, Address Change

Posted by Sarah Loats

The Credit CARD Act provides that if the due date for a credit card payment is on a day that the credit union does not receive or accept payments by mail, it may not treat a payment received by any method the next business day as late for any purpose. For example, if a due date lands on a Sunday one month, the credit union would have to treat a payment received on Monday as timely. The Board's proposed rule implements this requirement in section 226.10(d), which clarifies that if the credit union accepts or recieves payments made on the due date by a method other than mail, such as electronic or telephone payments, the credit union is not required to treat a payment made by that method on the next business day as timely. The Board is also proposing to apply this to all open-end lending, not just credit cards, in order to have one consistent rule.

Also, if the credit union makes a material change to the address for  receiving credit card payments, it cannot charge a late fee, and such change causes a delay in the crediting of a payment for the 60-day period following he change, the credit union cannot charge a late fee. Here is the applicable text. One of the proposed comments provides a safe harbor:

3. Safe harbor. A card issuer may elect not to impose a late fee or finance charge on a consumer’s account for the 60-day period following a change in address for receiving payment or procedures for handling cardholder payments which could reasonably be expected to cause a material delay in crediting of a payment to the consumer’s account.

Oh, and as a little side note, the House Financial Services Committee approved legislation yesterday to establish the CFPA. They also approved the bill to move the effective date of the CARD Act to December 1st.

Happy Friday everyone!

Reg Z Proposal: Credit Cards to Young Consumers

Posted by Sarah Loats

The Credit CARD Act restricts a creditor's ability to provide young consumers with credit cards. The Federal Reserve Board proposes to implement these requirements in proposed section 226.51(b). In order to issue credit cards to such members, the application will have to:

1. include the signature of a cosignor, guarantor, or joint applicant who has attained the age of 21 and has the means to repay the debts incurred; or
2. include financial information indicating that the underage member has the ability to repay the debts incurred.

Remember Anthony's post about the requirement to assess the consumer's ability to make payments in general? This provision incorporates those requirements - either you will have to assess the cosignor's ability to make the payments, or if there isn't a cosignor, the underage consumer's ability to make payments, in accordance with section 226.51(a).

I think the most interesting part of this section of the proposal is the comments regarding Regulation B:

"Proposed comment 51(b)(1)-1 explains that when evaluating an application to open a credit card account or credit line increase for a consumer under the age of 21, creditors must comply with applicable rules in Regulation B (12 CFR Part 202). Given that age is generally a prohibited basis for any creditor to take into account in any system evaluating the creditworthiness of applicants under Regulation B, the Board believes that Regulation B prohibits card issuers from refusing to consider the application of a consumer solely because the applicant has not attained the age of 21 (assuming the consumer has the legal ability to enter into a contract). Furthermore, because TILA Section 127(c)(8) permits card issuers to open a credit card account for a consumer who has not attained the age of 21 if either of the conditions under TILA Section 127(c)(8)(B) are met, the Board believes that a card issuer may choose to evaluate an application of a consumer who is less than 21 years old solely on the basis of the information provided under § 226.51(b)(1)(ii). Therefore, the Board believes, a card issuer is not required to accept an application from a consumer less than 21 years old with the signature of a cosigner, guarantor, or joint applicant pursuant to § 226.51(b)(1)(i), unless refusing such applications would violate Regulation B. For example, if the card issuer permits other applicants of non-business credit card accounts who have attained the age of 21 to provide the signature of a cosigner, guarantor, or joint applicant, the card issuer must provide this option to applicants of non-business credit card accounts who have not attained the age of 21 (assuming the consumer has the legal ability to enter into a contract)."

It's a good reminder to that there isn't just one lending regulation, but rather an entire system of lending regulations, that we need to consider when implementing lending policies and procedures.