CUNA Comment Letter

Proposed Amendments to Regulation Z and RIN No. 7100-AD55 Under the CARD Act

January 3, 2011

Ms. Jennifer J. Johnson
Secretary of the Board
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, NW
Washington, DC 20551

RE: Docket No. R-1393, Proposed Amendments to Regulation Z and RIN No. 7100-AD55 Under the CARD Act

Dear Ms. Johnson:

The Credit Union National Association (CUNA) appreciates the opportunity to comment on the Federal Reserve Board’s (Board’s) request for comment regarding its proposed rule to provide clarifications to Regulation Z, Truth in Lending, amendments implemented under the Credit Card Accountability Responsibility and Disclosure Act of 2009. By way of background, CUNA is the largest credit union advocacy organization in the country, representing approximately 90 percent of our nation's nearly 7,700 state and federal credit unions, which serve approximately 93 million members.

As discussed below, CUNA supports several amendments to clarify CARD Act rules that the Board is proposing but opposes others we believe are inconsistent with the Act.

Ability to Pay, §226.51(a)(b). These proposed amendments address requirements for creditors to determine the applicant’s ability to make minimum payments. As for the provisions that apply to all consumers, the proposal would clarify that creditors must only consider the applicant’s independent ability to make payments, and not consider other household income, unless the spouse or other member is a joint applicant or state law gives the applicant an ownership interest in the income of the spouse, which would be the case in the community property states (the Internal Revenue Service recognizes 9 community property states.). CUNA is very concerned about the possible impact of this change and does not support it. A principal concern is the possible effect on access to credit for individuals, predominantly women, who are members of households and are either not working themselves or underemployed. These individuals should be allowed to rely on household income when applying for credit and nothing in the CARD Act or other provisions of the Truth-in-Lending Act require a different result. We urge the Board to drop this amendment.

We do appreciate that there is a distinction between, and different results, for individuals who are younger than 21; the CARD Act expressly provides that such individuals have “an independent means” to pay back their loans. Because Congress did not apply this language to all consumers, we urge the Board to implement the provision for those under 21 and allow older consumers to rely on household income when seeking credit.

Definition of Credit Card, §226.2(a)(15)(ii) – Under the proposal, an account number that accesses a credit account would not itself be a credit card, unless the account number can tap into an open-end line of credit to purchase goods or services. If the line of credit can be accessed by a card, such as a debit or prepaid card, then that card would be considered a credit card. An overdraft line of credit accessed by an account number would not be considered a credit card, such as when a debit card number or checking account number is used to make an online purchase that overdraws the account. We believe these are useful clarifications and support them.

General Disclosure Requirements, Time of Disclosure, Periodic Statements, §226.5(b)(2) – The CARD Act requires that periodic statements be mailed or delivered 21 days before the payment due date. In November 2009, at the urging of CUNA and others, the CARD Act was amended to limit the 21-day requirements only to credit cards and other open-end plans that provide a grace period so that they would not apply to other credit plans, such as multi-featured, open-end lending programs. The proposed rule would clarify that the requirement that was in place under Regulation Z prior to the implementation of the CARD Act that creditors must provide consumers with at least 14 days to make payments will apply to those open-end accounts that are not subject to the 21-day requirement. This would apply to accounts not accessed by a credit card that do not provide a grace period. Under the proposal, creditors would be required to continue or to adopt reasonable procedures designed to ensure that periodic statements are mailed 14 days before payments are due. CUNA supports this clarification, which would ensure consumers will receive statements on a timely basis while allowing lenders to continue meeting the 14-day requirements for accounts not covered by the 21-day rule.

“Significant Changes in Account Terms” Requiring 45-day Notice §226.9(c)(2)(A)(ii) – Current rules outline the “significant changes” to the terms of the account that require a 45-day advance notice. The proposal would modify the definition of “significant changes” so that they would now include those terms in the table included in the account-opening disclosures, an increase in the periodic rate, information regarding periodic rates that may be used to calculate interest, and the acquisition of a security interest. Although the 45-day notice generally requires information to be in tabular format, the proposal would not require this for the information on periodic rates that is not required on the account-opening table. These change-in-terms provisions would also apply to a change in the rate from a fixed to variable rate, or vice versa, even if the new rate is lower than the prior rate. However, the notice would not be required if the lower rate is in connection with a promotional or other temporary rate program, or to a workout or temporary hardship arrangement, as long as these programs or arrangements are otherwise properly disclosed. Also, a 45-day notice would not be required when a fee is increased after a specified period, as long as the creditor previously disclosed the length of this period and the rate that would apply upon expiration. While these changes would result in more events being subject to disclosure, CUNA agrees these changes are “significant” for the consumer and should be subject to 45-day notice requirements. CUNA also agrees with the flexibility the Board is proposing for providing the disclosures.

Right to Reject, §226.9(c)(2)(iv)(B)—While under the CARD Act, the right to reject generally applies to increases in fees required to be disclosed under §§226.6(b)(1) and (b)(2) such as annual fees and late payment fees, the proposal would adopt an exemption stating that, when a fee has been reduced consistent with the Service- members Civil Relief Act, or similar federal or state statute or regulation, the right to reject does not apply to an increase in that fee once the statute or regulation no longer applies, provided that the amount of the decreased fee does not exceed the amount of that fee prior to the reduction. CUNA generally supports this change.

Variable-rate Exception to the Advance Notice Requirements—§226.9(c)(2)(v)(C)—The February 2010 rule changes provided that the exception to the advance notice requirement for an increase in a variable APR is conditioned on the rate varying according to the operation of an index that is not under the control of the creditor and is available to the general public. The rule also stated that an index is under a card issuer’s control if, among other things, the variable rate is subject to a fixed minimum rate or “floor” that does not permit the variable rate to decrease consistent with reductions in the index. The proposed rule attempts to clarify that a variable rate plan that is subject to a fixed minimum or “floor” does not meet the conditions of the exception to the advance notice requirements set forth in Section 226.9(c)(2)(v)(C). The proposal states that the Board believes that it is appropriate to adopt a consistent interpretation of an “index that is not under the control of the creditor” for all open end(not home secured) credit even though the substantive provisions of §226.55 continue to apply only to credit card accounts. CUNA believes that it is unnecessary to establish a consistent interpretation of “an index that is not under the control of the creditor” and is opposed to this change.

Billing Error Resolutions, §226.13 – The current rules require a creditor to complete the billing error resolution procedures within two billing cycles. The creditor may not reverse amounts previously credited for an asserted billing error after this time period. However, the proposal would allow a reversal of the credit to the extent the disputed amount was credited by another party, such as a merchant. We agree that if the disputed amount is credited by a third party, the lender should be allowed to reverse the credit after two billing cycles.

Fee Limitations §226.52(a)(1) – Under the CARD Act, fees imposed cannot exceed 25% of the credit limit during the first year of the account. The proposal would apply this to fees that consumers are required to pay prior to account opening, such as application or processing fees. We do not believe that inclusion of such fees under the limitation was intended by Congress and do not agree this step is necessary to effectuate the purpose of the CARD Act. We urge the Board not to adopt this change.

Limitations on Penalty Fees §226.52(b)(1)(ii)(A)-(B) – Under the CARD Act, card issuers may impose a $25 fee for an initial violation and $35 for additional violations of the same type during the next six billing cycles. The proposal would clarify that the $35 fee may also be assessed for a subsequent violation of the same type that occurs during the same billing cycle, in addition to the next six billing cycles. We support this change and note that this should not occur often since card issuers are also prohibited from imposing more than one over-the-limit fee per billing cycle, imposing more than one penalty fee based on a single event or transaction, or imposing multiple returned payment fees by submitting the same check for payment multiple times. However, a $35 fee may be charged if two separate payments are returned during the same cycle. Also, the CARD Act rules allow card issuers to permit multiple over-the-limit fees based on a single over-the-limit transaction when the consumer does not make payments sufficient to bring the balance under the credit limit by the next payment due date. The proposal would clarify that in these circumstances, the $35 fee may be assessed after the first violation.

Multiple Fees Based on a Single Transaction, §226.52(b)(2)(ii) – The proposal would outline examples to demonstrate that if the required minimum payment is not made during a billing cycle and a late fee is imposed, the issuer may include the unpaid amount in the minimum payment due during the next cycle and then impose a second late fee if the consumer fails to make the second minimum payment. However, if a consumer makes a minimum payment by the due date, the issuer may not impose a late fee based on the consumer’s failure to also include past due amounts that the card issuer chose not to include in that minimum payment. CUNA views this approach as reasonable from the standpoint of the consumer as well as for lenders, and we support it.

Inactivity Fees §226.52(b)(2)(c) – The CARD Act rules prohibit a card issuer from imposing a fee based on account inactivity. The official staff commentary would clarify that this also prohibits a card issuer from imposing a fee on all accounts and then waiving it for those who use the account for purchases over a certain threshold. The proposal would clarify that this does not prohibit the issuer from considering account activity when waiving or rebating annual fees on specific, individual accounts, such as in response to a consumer request, if the card issuer does not promote the waiver or rebate. CUNA agrees this approach is consistent with the intent of the CARD Act.

Reevaluation of Rate Increases, §226.59 – Under the CARD Act rules, creditors that raise the interest rate under certain conditions must review the increase every six months and reduce the rate, if appropriate. The proposal would clarify that a change from a variable rate to a fixed rate or a change from a fixed rate to a variable rate is not an increase if the rate in effect immediately before the change is equal to or greater than the rate immediately after the change. However, these review provisions would apply if the new rate exceeds the old rate. This would include situations in which the new rate later increases, as well as when the old rate later decreases based on the index used for that old rate. Also, if a review indicates a lower rate is in order, the proposal would clarify that a penalty rate currently imposed may still continue, as permitted under the CARD Act rules. In addition, in reviewing a rate increase based on current factors, an issuer may conclude that it would now offer a rate lower than the rate that applied to the specific consumer before the rate was increased. In these situations, the issuer may lower the rate to the one that applied before the increase and not to the lower one that would now apply to new accounts. CUNA agrees with these changes.

Thank you for the opportunity to comment on the proposed changes to clarify Regulation Z amendments pursuant to the CARD Act. If additional information about CUNA’s views on the proposal would be useful, please do not hesitate to contact me at 202-508-6736.


Mary Mitchell Dunn,
CUNA Senior Vice President and Deputy General Counsel