Written by Elizabeth M. Young LaBerge, Regulatory Compliance Counsel
Recently, a member asked about the timing involved in providing notice of an APR increase following a 60-day delinquency on a credit card account. The member knew that the notice needed to be sent 45 days prior to the increase, but was not sure whether it could be sent 15 days after delinquency, allowing the APR to be increased on the 61st day of delinquency, or if the 60 days needed to pass before it could be sent at all.
I wasn’t sure either, so I started to dig.
I started with the exception to the general prohibition on increasing the APR in in section 1026.55(b)(4):
Ҥ1026.55 Limitations on increasing annual percentage rates, fees, and charges.
(b) Exceptions. A card issuer may increase an annual percentage rate or a fee or charge required to be disclosed under §1026.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) pursuant to an exception set forth in this paragraph even if that increase would not be permitted under a different exception.
(4) Delinquency exception. A card issuer may increase an annual percentage rate or a fee or charge required to be disclosed under §1026.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) due to the card issuer not receiving the consumer's required minimum periodic payment within 60 days after the due date for that payment, provided that:
(i) The card issuer must disclose in a clear and conspicuous manner in the notice of the increase pursuant to §1026.9(c) or (g):
(A) A statement of the reason for the increase; and
(B) That the increased annual percentage rate, fee, or charge will cease to apply if the card issuer receives six consecutive required minimum periodic payments on or before the payment due date beginning with the first payment due following the effective date of the increase; …”
Section 1026.55 points the reader to section 1026.9 for details about sending the notice. Section 1026.9(g) contains information specific to sending a notice regarding a penalty APR:
“(g) Increase in rates due to delinquency or default or as a penalty—
(1) Increases subject to this section. For plans other than home-equity plans subject to the requirements of §1026.40, except as provided in paragraph (g)(4) of this section, a creditor must provide a written notice to each consumer who may be affected when:
(i) A rate is increased due to the consumer's delinquency or default; or
(ii) A rate is increased as a penalty for one or more events specified in the account agreement, such as making a late payment or obtaining an extension of credit that exceeds the credit limit.
(2) Timing of written notice. Whenever any notice is required to be given pursuant to paragraph (g)(1) of this section, the creditor shall provide written notice of the increase in rates at least 45 days prior to the effective date of the increase. The notice must be provided after the occurrence of the events described in paragraphs (g)(1)(i) and (g)(1)(ii) of this section that trigger the imposition of the rate increase.”
(Emphasis added.) This feels like an answer, because it says the creditor shall provide the notice AFTER the occurrence of the events. But the events it references are those “described in paragraph (g)(1)(i)" of section 1026.9... not section 1026.55. Section 1026.9(g)(1)(i) says nothing about 60 days’ delinquency. The language of (g)(1)(i) is merely the “consumer’s delinquency or default.” The consumer is typically “delinquent” following the expiration of their grace period. However, it seems strange that section 1026.9(g) would allow a notice of a rate change to be sent following a delinquency of one day, when a delinquency of 60 days is the minimum before section 1026.55 would allow the rate to actually be changed.
The commentary to section 1026.9(g) provides a little guidance regarding the relationship of the two sections:
“9(g) Increase in Rates Due to Delinquency or Default or as a Penalty
- Relationship between § 1026.9(c) and (g) and § 1026.55—examples. Card issuers subject to § 1026.55 are prohibited from increasing the annual percentage rate for a category of transactions on any consumer credit card account unless specifically permitted by one of the exceptions in § 1026.55(b). See comments 55(a)-1 and 55(b)-3 and the commentary to § 1026.55(b)(4) for examples that illustrate the relationship between the notice requirements of § 1026.9(c) and (g) and § 1026.55.”
That tells us nothing! So the commentary to section 1026.9(g) points you to the commentary to section 1026.55(a), for more information about how to comply with sections 1026.9(g) and 1026.55(b).
The commentary to section 1026.55(a) does provide actual examples addressing the timing question:
“B. Account becomes more than 60 days delinquent after provision of §1026.9(g) notice. Same facts as above except the payment due on June 15 of year two has not been received by August 15. Section 1026.55(b)(4) permits the card issuer to apply the 28% penalty rate to the $1,500 purchase balance and the $200 purchase because it has not received the June 15 payment within 60 days after the due date. However, in order to do so, §1026.55(b)(4)(i) requires the card issuer to first provide an additional notice pursuant to §1026.9(g). This notice must be sent no earlier than August 15, which is the first day the account became more than 60 days' delinquent. If the notice is sent on August 15, the card issuer may begin accruing interest on the $1,500 purchase balance and the $200 purchase at the 28% penalty rate beginning on September 29.” (Emphasis added.) See 12 C.F.R. Part 1026, Supp. I, comment 1026.55(a)-1.iii.B.
AHA! The notice should be sent only once the account is 60 days’ delinquent. One should feel a sense of satisfaction having actually arrived at a solution… and yet…
Fun and informative blog, Elizabeth! Great use of the "Inception" movie concept to discuss increased APR, delinquency, and timing and make them even more exciting than they already are! : )
Now we just have to worry that its not all based on the concept of the movie "Matrix" ... ; )
Posted by: DJ | April 11, 2016 at 08:39 AM