Debit Cards in the Age of Instant Gratification: Disclosing Instant Issuance Fees
More credit unions must be offering instantly issued credit and debit cards these days because the NAFCU Compliance Team has noticed an increase in questions on the topic. I personally remember the first time I received a debit card instantly because I was so impressed. I went into my bank (yes, it was a bank – forgive me, I was young and ignorant in the ways of the world) to open an account and the woman helping me told me she was going into the vault to get my card. When she came back with a plastic debit card with my name already printed on it, I was shocked. Technology has allowed some credit unions to offer instant issuance as an amazing member service… but it does cost money. Multiple members have asked lately whether instant issuance fees must be disclosed or if they trigger a change-in-terms notice. There's not necessarily a clear-cut answer to this… but we can look at the decision points credit unions might consider.
Generally, Truth in Savings (Part 707) covers the required disclosures for deposit accounts. Section 707.4(b)(4) requires the disclosure of the amount of any fees "that may be imposed in connection with the account." This language is quite broad, but there is staff commentary to sub-section 707.4(b)(4) that helps determine which fees must be disclosed at account opening:
1. Types of fees. Fees related to the routine use of an account must be disclosed. The following are types of fees that must be disclosed in connection with an account:
i. Maintenance fees, such as monthly service fees.
ii. Fees related to share deposits or withdrawals.
iii. Fees for special services, such as stop payment fees, fees for balance inquiries or verification of share and deposits, fees associated with checks returned unpaid, fees for regularly sending to members share drafts that otherwise would be held by the credit union, and overdraft line of credit access fees (if charged against the share account).
iv. Fees to open or to close an account.
v. Fees imposed upon dormant or inactive accounts.
2. Other fees. Credit unions need not disclose fees such as the following:
ii. Incidental fees, such as fees associated with state escheat laws, garnishment or attorneys fees, to change names on an account, to generate a midcycle periodic statement, to wrap loose coins, for photocopying, for statements returned to the credit union because of a wrong address, and locator fees." 12 C.F.R. Part 707, App. C, comments 707.4(b)(4)-1 and -2.
As referenced in the staff commentary, some fees do need to be disclosed and others do not. These lists are not exhaustive and instant issuance fees are not referenced, so a credit union would need to make a determination as to which category above seems to apply its instant issuance fee. That may depend on the circumstances when such a fee is charged. For example, if a credit union charges the fee for all cards which are issued instantly when an account is opened in person, that fee may be more akin to a "fee to open… an account" and more closely related to routine use. However, if a credit union provides the initial card for no charge, and an instant issuance fee is only charged when a replacement card is required due to a member misplacing the card or the card being worn out, an argument could be made that the fee is more akin to an "incidental fee," as it is not connected to routine use of the account. Ultimately, each credit union would need to examine when the fees are charged and make its own risk based determination as to whether the fees are more routine or incidental in nature.
Some of you may also be saying "It's a debit card – what about Regulation E?" Under section 1005.7(b)(4), fees must be disclosed if they are imposed "for electronic funds transfers or the right to make transfers." There is no reference to access devices or instance issuance in section 1005.7(b) or its commentary. Again, credit unions would need to make their own determination as to whether the fee and the circumstances in which it is charged amounts to a fee the right to make transfers and required to be disclosed, or if it is more akin to an incidental fee for expedited service and disclosure is not required.
For both Truth in Savings and Regulation E, whether a change in terms notice is required because a fee is changed or a credit union adds the ability to offer instant issuance depends on whether the fee is the type to be disclosed in the first place. So a credit union may need to do the above analysis, even if an account in question has existed for some time. Under section 707.5(a) of Truth in Savings, a credit union would provide notice of any change in a term required to be initially disclosed under section 707.4(b). If a change in terms notice is required, it would be provided at least 30 calendar days before the change is effective.
Under section 1005.8 of Regulation E, notice of a change is required when that change affects a term required to be disclosed initially under section 1005.7(b)and the change could result in, among other things, "increased fees for the consumer. See, 12 C.F.R. § 1005.8(a)(1)(i). If notice is required under TIS and Regulation E, a notice can be sent under Regulation E's 21 day timeline, rather than Truth in Savings' 30 day timeline, and this will satisfy Truth in Savings requirements. See, 12 C.F.R. § 707.3(c).
As is so often the case, there is not a straight answer on this. Whether an instant issuance fee for a debit card must be disclosed would differ from credit union to credit union, depending on what triggers the fee and a credit union's own analysis under Regulation E and Truth in Savings. But hopefully this helps credit unions facing these questions to identify some of the pivot points as they make their own determinations.