CUNA Comment Letter

Section 106 of the Credit Card Accountability Responsibility and Disclosure Act of 2009

July 7, 2009

Sandra F. Braunstein
Director – Division of Consumer and Community Affairs
20th St & Constitution Ave, NW
Washington, DC 20551

RE: Section 106 of the Credit Card Accountability Responsibility and Disclosure Act of 2009

Dear Ms. Braunstein:

We are writing to you regarding our members’ concerns with a requirement in the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act) that is creating significant compliance and implementation problems for credit unions. The specific provision is the requirement in Section 106 of the CARD Act that will prohibit creditors from treating payments as being late unless the creditor adopts reasonable procedures to ensure that periodic statements are mailed or delivered to the consumer no later than 21 days before the payment due date. This letter is a follow-up to discussions we have had with attorneys in the Division of Consumer and Community Affairs. By way of background, CUNA is the largest credit union advocacy organization in this country, representing approximately 90% of our nation’s 8,000 state and federal credit unions, which serve 92 million members.

As we explained in these earlier discussions with your staff, Section 106 of the CARD Act is very problematic both because it is one of the very few provisions that apply to all open-end credit, not just credit cards, and because of the upcoming August 20th effective date. Since this was added by the Senate shortly before passage, the scope of this provision beyond credit cards was not fully appreciated until after it was signed by the President on May 22, 2009, and we had no opportunity to raise questions or express our concerns prior to enactment.

We note that others have also not appreciated the broad scope of this provision. For example, on June 25th, the Office of Thrift Supervision published a summary of the CARD Act, which stated that Section 106 only applies to credit cards. This has undoubtedly created further confusion within the financial institutions industry.

CUNA supports the intent of the CARD Act, which is to eliminate predatory credit card practices. Although it will require significant adjustments over the next six weeks to ensure that credit card periodic statements are mailed at least 21 days in advance before a late charge may be assessed, Credit unions are diligently working with their data processors to implement these changes prior to the August 20, 2009 effective date.

However, as noted above, Section 106 covers more than credit cards and applies to all open-end lending products. This includes general lines of credit, lines of credit associated with share draft and checking accounts, signature loans, and home equity lines of credit (HELOCs). Of particular concern -- and perhaps unique concern -- to credit unions is that Section 106 will apply to multi-featured, open-end lending programs. Under these plans, which have been allowed by the Federal Reserve Board (Board) for over a quarter of a century, a credit union member has one account with the credit union with a number of features, or subaccounts, that are available to the member. This arrangement allows the member to access a variety of different types of open-end credit under a single plan, including loans for automobiles and other vehicles. Currently, almost half of the nation's credit unions, about 3,500, use these open-end programs.

Although we have not been able to ascertain whether it was actually the intent of the drafters of Section 106 to apply it to all open-end credit, we recognize that the statutory language is clear with regard to the broad scope of these provisions. However, credit unions will need many more months to comply if they are to apply the 21-day requirement to open-end lending products beyond credit cards.

The Board has clear authority to make the necessary modifications to ensure financial institutions have sufficient time to make the required changes. Section 105(a) of the Truth in Lending Act (TILA) allows the Board to make adjustments to the TILA statutory requirements that are “necessary or proper to effectuate the purposes of this title, to prevent circumvention or evasion thereof, or to facilitate compliance therewith.”

In a related matter, the Board has recently used this authority with regard to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, which required disclosures on the front of each periodic statement in a prominent location that describe the effects of making minimum payments. However, in developing the rules that were issued last year to implement these requirements, the Board used its authority under Section 105(a) to limit these disclosures to credit cards by recognizing that these disclosures would not be useful or necessary for other types of open-end credit. We note that the CARD Act contains similar provisions with regard to minimum payment warnings that would apply to all open-end credit and, again, urge the Board to use this authority to limit these disclosures to credit cards for similar reasons.

The Board also has authority under Section 105(d) to extend the effective date or provide a later mandatory compliance date of regulations that implement TILA requirements. The Board has often used this authority to provide financial institutions with additional time to comply with new TILA requirements, especially with regard to comprehensive legislation, such as the CARD Act.

We urge the Board to use its authority so that, at a minimum, credit unions and other financial institutions have additional time to comply with Section 106 of the CARD Act as it applies to open-end credit other than credit cards. Credit unions have raised the following concerns, which we believe justify a delayed mandatory compliance date:

We have two additional questions that we ask the Board to clarify as part of the rulemaking process. First, we are very confused by the language in Section 106(b) with regard to grace periods. This provision outlines how the 21-day notice requirement applies when a grace period exists. At a minimum, we seek further clarifications as to how this applies to open-end credit plans, both for credit cards and other open-end products. Also, for various types of loans, credit unions often disclose two dates, one of which is the date payment is due and the other is the date after which a late payment is assessed. This is similar to first mortgage loans that often provide two such dates. We urge the Board to clarify that only the later date will be used to determine compliance with the 21-day notice requirement. This would be consistent with the intent of the CARD Act, which is to provide and disclose a 21-day period in which a consumer may make a payment without incurring a late fee.

The new 21-day requirements will require very significant and complicated operational changes that in many cases will not be completed by August 20th. In recognition that this not an issue of whether credit unions are willing to comply but an issue of not being able to comply by the effective date, we strongly urge the Board to make the necessary accommodations to ensure credit unions and other affected financial institutions can be in compliance with these provisions in an expedited manner that will serve the interests of consumers, all without the threat of needless legal challenges and litigation. At a minimum, this should include extending the effective date beyond August 20th for open- end credit other than credit cards.

Thank you for the opportunity to raise these issues with regard to Section 106 of the CARD Act that will require creditors to adopt reasonable procedures to ensure that periodic statements are mailed or delivered to the consumer no later than 21 days before the payment due date. If you want to discuss or meet with us with regard to these concerns, please contact me or Jeff Bloch, CUNA Senior Assistant General Counsel, at (202) 638-5777.


Mary Mitchell Dunn
Senior Vice President and Deputy General Counsel

cc: Leonard Chanin
James Michaels