Section 102 of the Credit CARD Act, Part 1 of 2; Corporate Stabilization

Posted by Anthony Demangone

Section 102 of the Credit CARD Act is a doozy, so we're going to split it in half. 

Double cycle billing.  This section adds a new subsection (j) to Section 127 of the Truth in Lending Act to prohibit double-cycle billing.  This section should not cause weeping and gnashing of teeth within the credit union industry.  Placing this requirement on credit unions is akin to banning unicorns from running in the Belmont.  The practice was not used much, if at all, within our industry. In any event, NCUA's UDAP rule already would have banned double-cycle billing for federal credit unions on July 1, 2010. 

If you are curious how double-cycle billing works, check out this pretty nifty blog posting.  And you may recall that big credit card lenders were taken behind the woodshed by Congress not too long ago on this issue, forcing many to end the practice.

What this section does, though, is move up the compliance deadline from July 1, 2010 to February 22, 2010.

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Opt-in for over the limit fees.  Section 102 does blaze new trails, though.  This section also adds subsection (k) to Section 127 of TILA – which requires an opt-in for over-the-limit transactions if a fee is assessed.  There was no such requirement under UDAP or the final amendments to Reg Z's open-end rules.  But first, let me vent.

If a fee is assessed?  Does anyone NOT charge an over the limit fee?

Effective on February 22, 2010, a credit union will not be able to charge an over-the-limit fee unless the member has “opted-in” to allowing over-the-limit transactions to be processed rather than rejected.  If a member opts-in, the credit union is only allowed to charge one over-the-limit fee per billing cycle and, in general, would only be allowed to charge an over-the-limit fee for the next two billing cycles if the member’s balance still exceeds their credit limit.   In addition, if the member opts-in, lenders will have to allow them to revoke the opt-in election whenever they wish.  

Oh, in case you forgot.  Each time you charge an over the limit fee (assuming Joe Member gives you his blessing), you have to remind the affected member of his right to revoke their opt-in.   For those members who opt-in (agree to over-the-limit* fees), you will be required to remind them (via new disclosures on the periodic statement) about their right to revoke their opt-in election each time an over the limit fee is charged.  In other words, I'd look at your credit card over the limit fee income, and I would expect it to drop considerably. 

All these requirements kick in on February 22, 2010.

There is some good news.  The Federal Reserve is required to issue regulations relating to the disclosure, form, and timing of the opt-in notice to credit cardholders.  Will they grandfather existing accounts? Don't hold your breath.  The Credit CARD Act doesn't appear to discuss that possibility.  Nevertheless, the Fed has indicated to us that they will issue regulations before August 20, 2009 to implement and clarify requirements under the Credit CARD Act.  If there is any room for comment on these rules, we need to act quickly and decisively. 

*Editor's Note: The original post accidently used "late fee" rather than "over-the-limit" fee.

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NCUA has released Letter to Credit Union 09-CU-14.  The guidance details NCUA's actions and plans on how it will implement corporate stabilization efforts under its new powers as authorized by Congress.

Comments

[Peter]

Anthony, In your "Oh in case you forgot" paragraph, you reference "(agree to late fees)". Don't you mean "agree to over-the-limit fees"?

Thanks BTW for this series. It's been a very helpful double check on the research we have done, especially when using to discuss, ahem, with staff resisting change.

[Steve Van Beek]

Thanks Peter, I've made the correction - appreciate the feedback.

Glad you are enjoying the section-by-section series.

[Ho]

I'm enjoying it Steve, thanks :)