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January 19, 2010



Awesome job on the overview document! This will prove to be very helpful. I'm not even going to comment on the floor issue... the news made me ill.


Just so I understand… if we previously disclosed that our variable rate card has a floor and ceiling, do we have to send a change in terms notice stating that we’re eliminating the floor (and removing the limitation on the amount the rate may change)?

Anthony Demangone

Hi Joyce. If you have a floor, you won't be able to take advantage of the exception to 226.55(b)(2). That section allows an issuer to increase rates pursuant to a variable rate that is outside of the issuer's control. So, you don't have to change that term, but you won't be able to use the variable rate exception until you do. At least, that's how I read it.


Sorry, Anthony. I should have been more clear. We are going to remove our floor so that we can take advantage of the exception to 226.55(b)(2). Still no change in terms notice required notifying members that we are removing the floor?

Anthony Demangone

This is the million dollar question. If you look at page 515, the Fed does give an example where someone is issue a change in terms to remove the floor. And to me, that makes sense. Why would someone remove the floor? To take advantage of the variable rate exception? And why would they do that? Because they know that rates will most likely go up. I haven't found anything that clearly indicates that you don't need a change in terms to remove the floor.


Okey dokey...I haven't been able to find anything either and wasn't sure if I missed anything. Thanks a bunch!

Erin Ewart

Any thoughts on the implication of this rule for HELOCs? The comment only pertained to rate increases on credit cards. However, the variable rate exception on HELOCs also requires that creditors not exercise "control" over the index used [226.5b(f)]. Could this new comment also effectively require the removal of floors HELOCs?

Anthony Demangone

Hi Erin,

It might, although I think that conclusion is less than clear at this point. The Fed is currently working on a final rule to amend the HELOC rules. I wonder if they'll address it squarely within that final rule. If the recent final rule is any indication, the Fed may move in that direction.

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