Credit CARD Act and the 21-Day Issue

Posted by Anthony Demangone

After extensive and very recent conversations with numerous folks at many levels of the Federal Reserve, I do not hold out any real hope that the Fed will carve out an exception for non-credit card open-end loans on the 21-day issue.  Without a legislative fix, the Fed feels that it can go no further.  And with Congress either out (the House) or soon leaving (the Senate) for its August recess, the window of opportunity for a legislative fix has slammed shut for some time.  We have a NAFCU Today article on this issue that you can access here.  NAFCU pushed hard to try to get a fix while Congress was in session, but ultimately obtaining a legislative fix in such a short time faced many hurdles.

With that in mind, affected credit unions may want to consider the following paths.

1. Do nothing.  They can keep their current due dates and simply send periodic statements as they do now.  With this choice, credit unions will lose the ability to treat payments as late for many open-end loans.
2. Credit unions can latch on to the temporary "fix" that the Fed provided in its interim final rule.  This fix involves placing a disclosure on or with the periodic statement to indicate that members have 21 days from the date of mailing to get a payment in to the credit union. I wrote about this earlier, as you may recall. (Scroll to the bottom of the post.)  With the fix, a credit union can wait to see if a legislative fix emerges.  Which may or may not happen.  But ultimately, as things currently are, credit unions that take this route will need to make operational changes when the availability of this fix sunsets.
3. Credit unions can make operational changes necessary to bring themselves into compliance with the 21-day requirement so that they may treat payments as late.  With this comes risk that Congress may ultimately fix the 21-day issue sometime in the future.  

I wish there were better news, but I can say that NAFCU has worked this issue as hard as possible.  We've met with Congressional staff, NCUA, the Fed and urged Connecticut credit unions to communicate concerns with Senator Dodd.  And we'll keep working this issue.  But I know that many of you needed information to make operational decisions.

Have a great weekend, everyone.

Comments

[Rob Rutkowski]

Would you agree that so long as the credit union is not in compliance with the 21 day statement requirement that the credit union cannot report the account as delinquent with the Consumer Reporting Agencies?

[Anthony Demangone]

Hi Rob. That is how we are reading it. In our meetings with the Fed, they seem to feel that this inability to report negative information would not go on indefinitely. At some point, a payment would be late - even if there wasn't compliance with the 21-day requirement. I expect them to spend some pages in the final rule to explain this issue in greater detail. Associated with this is the issue of collections and repossessions.

[Robert F Bregler]

Most of our members are paid weekly and they make their loan payments weekly. How could we ever provide them with 21 day notices?

[Anthony Demangone]

Hi Robert,

Your situation is not uncommon, but it does create a compliance nightmare. We have heard that credit unions in your situation are considering amending their affected loans to migrate them to a monthly due date.

[Harry Metz]

Anthony,
What would be the impact of the “skip” solution on new loans? For example, if we made a new loan under our open-end plan on September 15th; the next statement (mailed the first week of October) would have a November loan due date. This would result in the member’s first required payment being due as much as two months after loan closing. Any recommendations as to additional notification of interest accrual, payment issues, potential for default, etc?

[Anthony Demangone]

Hi Harry,

That is an interesting issue, but I note that there's nothing that prevents you from pushing an initial due date out that far as a federal credit union. Your credit union is state-chartered, so you'd need to see if a SC law or reg would prevent you from doing so. As for additional notification, simply stick to the required initial Reg Z disclosures. As for potential for default, pushing initial due dates out that far certainly will increase that chance at some level, but you'd have to weigh that against noncompliance with the CARD Act. Best of luck, and thanks for reading!