CUNA Regulatory Comment Call
April 29, 2009
Fed Requests Comments on Regulation Z Open-End Credit Rules
- The Federal Reserve Board (Fed) has issued proposed amendments to the open-end credit rules under Regulation Z, which are comprised primarily of clarifications to the Regulation Z final rule that was issued in December 2008. These changes will be finalized and effective as of July 1, 2010, along with the other changes outlined in the recent final rule.
- As with the December 2008 final rule, these proposed changes affect the disclosures for credit card and other revolving credit plans.
- Along with this Regulation Z proposal, clarifications are also being proposed in connection with the final rule that was issued in December 2008 by the National Credit Union Administration, the Fed, and the Office of Thrift Supervision, which addresses unfair and deceptive acts or practices as they pertain to credit cards. These proposed clarifications are addressed in a separate CUNA Regulatory Comment Call.
- Although the Fed has requested comments on these additional changes, the proposal is not intended to change the level of protections that are outlined in the final rule that was issued last year.
- Comments are due to the agency by June 4, 2009. Comments are due to CUNA by May 22, 2009. If commenting directly to the Fed, you must refer to Docket No. R-1286.
Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Senior Vice President and Deputy General Counsel Mary Dunn at firstname.lastname@example.org and to Senior Assistant General Counsel Jeff Bloch at email@example.com; or mail them to Mary and Jeff in c/o CUNAs Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, South Building, 6th Floor, Washington, DC 20004. You may also contact us if you would like a copy of the proposal or you may access it here.
In December 2008, the Fed issued a final rule that changes the open-end credit rules under Regulation Z, as well as the official staff commentary, which primarily affects credit cards and other revolving credit plans. These include comprehensive changes to the format, timing, and content requirement for the credit card application and solicitation disclosures, account-opening disclosures, periodic statements, change-in-term notices, and advertising provisions. Click here for more information:
The proposal that has just been issued is intended to resolve uncertainties and to make other technical changes, with the goal of facilitating compliance by July 1, 2010. Although the Fed has requested comments on these additional changes, the proposal is not intended to change the level of protections that are outlined in the final rule that was issued last year.
DESCRIPTION OF THE PROPOSED RULE AND CHANGES TO THE OFFICIAL STAFF COMMENTARY
Credit Card Applications and Solicitations
The proposal will clarify that an issuer offering a deferred or waived interest plan may not disclose this with an annual percentage rate (APR) of 0% due to the possibility that the consumer may not need to pay the interest if the balance is paid before a certain date.
In the account-opening disclosures, an exception to listing the specific APR would be if the APR varies by State and the disclosures are provided in person in connection with the purchase of goods and services. In these situations, creditors may provide the specific APR applicable to the consumer, or a range of rates if the disclosure contains a statement that the APR varies by State and refers the consumer to the account agreement or other disclosure for more information about the APR that would apply, such as a list of APRs for all States. The proposal will provide a similar exception in these situations when an APR varies based on the consumers creditworthiness.
Under the final rule issued last year, the accuracy standard for variable rate disclosures provides that the variable rate is accurate if it is in effect as of a specified date within thirty days after the disclosures are provided. The proposal clarifies that this specified date does not have to be included in the disclosures, which ensures that creditors do not have to continually reprint these disclosures with these constantly changing dates.
The proposal clarifies that deferred and waived interest programs may continue to be offered, as long as they comply with the other requirements under Regulation Z and the unfair and deceptive acts or practices (UDAP) final rule that were also issued last year. There were provisions in these final rules to indicate that certain types of these programs may be prohibited, but that prohibition will no longer apply.
However, the proposal will add disclosure requirements for these types of programs. Creditors will be required to disclose on the periodic statement the amount of the deferred or waived interest balance on which interest may be imposed. For the two billing cycles proceeding the date in which this balance must be paid to avoid interest, the periodic statement must disclose this date and must indicate that the consumer must pay the balance in full by that date in order to avoid paying the interest. The proposal includes model language for making this disclosure.
The final rule requires that periodic statements include the disclosure of interest charges and fees for the statement period and for the calendar year-to-date. The proposal clarifies that this disclosure applies when a creditor acquires an account from another creditor or when the underlying account relationship is changed in some way. In these situations, the interest and fees incurred prior to the acquisition or change must also be included in these disclosures, although the prior interest and fees may be disclosed separately. This clarification will not apply when the consumer opens a new account with another creditor and transfers balances from the old account.
Change in Terms
The final rule issued last year requires creditors to provide a 45-day advance notice of a change in a term that is disclosed in the account- opening summary table. Under the proposal, this requirement will not apply when the change is applicable only to checks that access a credit card account, as long as these terms are disclosed with the checks, as otherwise required under the final rule. However, the 45-day notice will be required when a creditor adds a credit feature or another credit access device, other than credit card checks, although this notice may be combined with the other required disclosures.
The final rule provides guidance on the disclosure of skip payment features or waivers of interest in which the rate is not changed. The proposal clarifies that this does not apply to other types of temporary rate reductions or promotional rate offers in which the rate is lowered and then increased at a later time. The proposal also clarifies that the exception to the 45-day notice if the consumer has agreed to a specific change is intended to be very narrow and only to the situations that are outlined in the official staff commentary, which includes when the consumer substitutes collateral or when additional credit is advanced due to a change that is relatively unique to the consumer.
Increase in Rates Due to Delinquency or Default or as a Penalty
The final rule requires creditors to provide a 45-day advance notice when a rate is increased due to the consumers delinquency or default, including delinquency or default with other creditors, or if a rate is increased as a penalty for one or more events specified in the account agreement. A notice does not have to be provided if the rate is increased for failure to abide by a workout arrangement, assuming the rate is no higher than what would have applied if there was no workout arrangement. The proposal clarifies that this exception to the notice requirement will apply whenever there are temporary hardship arrangements in which the rate is lowered for a specific period of time.
Billing Error Resolution
Currently, creditors must conduct a reasonable investigation before denying claims in connection with unauthorized transactions or billing errors and may request the consumers cooperation. The final rule clarifies that the creditor may not require the consumer to comply with a request to sign a written affidavit or file a police report in order to ensure a favorable resolution of these matters, although for claims of unauthorized transactions, the creditor may require the consumer to provide a signed statement supporting the claim, as long as the consumer will not be subject to criminal penalty. However, the official staff commentary indicated that the creditor may only request the signed statement, but the proposal clarifies that this may be required, and not merely requested.
The proposal will include advertising requirements for deferred or waived interest programs in which interest does not need to be paid if the balance is paid by a certain date. These would not apply if interest is waived if the balance is paid within a grace period that applies for each billing period and would not apply to skip payment programs in which the consumer can avoid making a payment for one or more billing cycles but interest continues to accrue and must be paid when the program period ends. These requirements also do not apply to 0% percent offers in which the consumer will have no obligation to pay interest for any reason during the period that the 0% rate applies. The proposal includes model language for making these advertising disclosures.
Under the proposal, advertisements of deferred or waived interest plans must disclose the deferred or waived interest period clearly and conspicuously in immediate proximity to each statement of a deferred triggering term, which includes terms such as no interest, no payments, deferred interest, same as cash, or similar terms. If a phrase such as no interest is used, the disclosure must state that the balance must be paid in full in a conspicuous manner before the deferred or waived interest period. The period of time that the interest is deferred or waived does not need to include any informal courtesy period in which the creditor may decide to extend this period as a matter of practice.
Creditors will be in compliance with the immediate proximity requirement if the disclosure is made within the same phrase as the triggering term. Creditors will be in compliance with the clear and conspicuous requirement if the disclosure is equally prominent with the triggering term, which includes using the same type size.
Additional key terms will need to be disclosed in a prominent location closely proximate to the first statement of a triggering term, although they do not have to be equally prominent. Including these terms within the same paragraph will be sufficient. These key terms include a statement that interest will be charged from the date the consumer becomes obligated to pay the balance if the balance is not paid within the deferred or waived interest period. There must also be a statement that the interest will be charged if the account is in default during the deferred or waived interest period.
The first statement will be the most prominent statement on the front side of the first page of the principal promotional document. The largest type size will be considered the most prominent. If there is no principal promotional document, then it will be the most prominent listing of the statement on the front side of the first page of each document. Catalogs or multi-page advertisements will be considered one document.
The above proximity and formatting requirements only apply to written or electronic advertisements. They will not apply to non-written, non- electronic advertisements, although they will still have to be considered clear and conspicuous. These requirements also do not apply to envelopes, banner advertisements, or pop-up advertisements.
Model Forms and Clauses
The proposal also makes other technical, nonsubstantive changes to certain of the model forms and clauses that were included in the final rule issued last year.
QUESTIONS TO CONSIDER REGARDING THE REGULATION Z PROPOSAL
(The Fed has specifically requested comment on the
issues raised in these questions.)
- The new open-end disclosure rules will not apply to open-end credit that is secured by the consumers home.
These will be addressed when the Fed considers changes later this year to home-secured credit under the
Regulation Z closed-end rules. However, should these new rules apply to open-end credit secured by property
that is not the consumers home? Should this type of credit be subject to the same rules that apply to
home-secured credit or should this be treated the same as other open-end, non home-secured credit?
- The final rule requires that periodic statements include the disclosure of interest charges and fees
for the statement period and for the calendar year-to-date. The proposal clarifies that this disclosure
applies when a creditor acquires an account from another creditor or when the underlying account relationship
is changed in some way. In these situations, the interest and fees incurred prior to the acquisition or
change must also be included in these disclosures, although the prior interest and fees may be disclosed
separately. What would be the operational burdens or concerns associated with carrying over the cost totals
in these situations?
- Other comments?
Eric Richard General Counsel (202) 508-6742 firstname.lastname@example.org |
Mary Mitchell Dunn SVP & Deputy General Counsel (202) 508-6736 email@example.com
Jeffrey Bloch Assistant General Counsel (202) 508-6732 firstname.lastname@example.org
Luke Martone Senior Regulatory Counsel (202) 508-6743 email@example.com