Minimum Payment Warnings; Right to Cancel; NCUA Regulatory Alert
Posted by Anthony Demangone
I'm sure that many of you are still digging through the 841-page Reg Z proposal. So are we. Today, I want to clarify two major issues that we've discovered within the proposal. Both should address questions that many of you have.
Minimum payment warnings.  The Credit CARD Act appeared to require detailed minimum payment warnings for all open-end credit. The proposed rule issued by the Fed applies the minimum payment warnings only to credit card accounts. The Fed did not take this issue lightly. But they did reach this conclusion:
...the Board proposes to use its TILA Section 105(a) and 105(f) authority (as discussed above) to exempt overdraft lines of credit and other general purpose credit lines from the repayment disclosure requirements, because in this context the Board believes the repayment disclosures are not necessary to effectuate the purposes of TILA. Page 53Â of the Proposal.
The Fed went to great length in explaining itself on this issue. They spend 8 pages walking you through the payment warning issue, starting at the Bankruptcy Act and continuing on through the Credit CARD Act and various Regulation Z proposals. The details might come in handy if you wanted to comment to the Fed in support of this decision. (Hint, hint.)  Access the detailed explanation here.
Right to Reject for Increased APRs. The Credit CARD Act appeared to give consumers the right to cancel any proposed interest rate hike for credit card accounts. That right, under the proposal, would be eliminated. The Fed's rationale makes sense. In short, due to other protections created by the Credit CARD Act, a consumer that rejects an increased APR really does not gain any substantive rights.  In fact, it may end up hurting consumers, as they may think that rejection blocks the increase while allowing them to use the card with no affect.  Access the Fed's rationale here.
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In related news, NCUA issued Regulatory Alert 09-RA-10. Under Regulation Z, when a credit union changes material terms or increases an APR, they must give 45 days notice. That being said, the credit union can begin charging the higher rate or implement the new significant term 14 days after they mail the change-in-terms disclosure. But the credit union is not required to notify members about the 14-day wrinkle. In the alert, NCUA suggests that credit unions disclose this fact by inserting the following language in the notice:
NOTE: Even if you reject this change in terms, the new terms will be applied to any transactions on your account that occur on or after [INSERT DATE]. Please read the alert for additional details. *** NAFCU is offering a webcast next week that will address the changes to Reg Z brought about by the Credit CARD Act. Read all about it and download a registration form here. The speakers, Obrea Poindexter and Oliver Ireland, are top-notch. Personally, I look forward to hearing what they have to say. NAFCU members and non-members can sign up.