Changing for the Better
Happy Friday and National Root Beer Float Day! Cheers!
Before we all enjoy the genius combination of flavorful bubbly root beer and classic vanilla ice cream, let’s talk about change in terms notices. Better yet, let’s talk about when we do cool things for our members that don’t trigger an advanced change-in-terms notice!
A few years ago, the compliance team published a series of blogs to help our compliance friends understand and navigate the numerous regulations governing change-in-term requirements. This master chart covers several key regulations governing change-in-terms notices for checking, savings, and credit accounts. There are certain account changes that trigger the requirements to send advanced notice, such as increased fees or interest rates. However, sometimes we receive questions about what to do when a credit union is making a change that might help the member, like lowering or eliminating fees or expanding options for members. This blog will cover a few common scenarios for changing terms in a way that may be beneficial to members.
Lowering and eliminating share account fees. Credit unions sometimes lower fees associated with share checking and savings accounts and wonder whether notice is required. Section 707.5(a) of NCUA’s Truth in Savings regulation requires advanced notice to be sent for changes that “may reduce the annual percentage yield (APY) or adversely affect the member.” However, no notice is required for a reduction in APY associated with a variable-rate account. The rule does not mention a notice requirement for changes that would be beneficial to members, like elimination of a fee, and therefore it will be up to the credit union to determine whether to send advance notice and when that notice would be sent.
Section 1005.8(a) of Reg E requires advanced notice for changes in account terms if the change would result in increased fees, increased liability for members, fewer types of electronic fund transfers; or stricter limitations on transfers. Similarly, this rule does not mention any notice requirements associated with changes that would reduce fees or expand options for members. However, even when advance notice is not required, it may reflect well on the credit union to brag about having lower fees or eliminating certain fees for share accounts.
Lowering credit card interest rates. Reg Z generally requires advanced notice for significant changes on credit plans. However, Section 1026.9(c)(2) identifies a few circumstances in which advanced notice is not required, including a change that involves a reduction of any component of a finance or other charge and an extension of the grace period. Additionally, for changes agreed to by the member, advanced notice is not required. Instead, the credit union is required to give notice by the effective date of the agreed upon change.
Lowering HELOC interest rates. Similarly, section 1026.9(c)(1) specifically states that advanced notice is not required when the credit union makes a change for a HELOC plan that involves a “reduction of any component of a finance or other charge.” Again, for changes agreed to by the member, advanced notice is not required. Instead, the credit union is required to give notice by the effective date of the agreed upon change.
Making funds available faster. Section 229.18(e) of Reg CC generally requires notice before changing the funds availability schedule. However, for changes that result in faster availability for a member than what Regulation CC requires, advanced notice is not required. Instead, notice is required no later than 30 days after implementation.
Before we get back to our root beer floats, it’s important to note that regardless of the requirement to send a change-in-terms notice, credit unions are only permitted to make changes in accordance with their agreements with members. This means that changes cannot be made where the account or loan agreements do not allow, and this cannot be changed simply by sending a change-in-terms notice.