Compliance Blog

Posted by Anthony Demangone

The Regulation Z proposal tackles a number of sticky issues.  The issue of substitute and replacement cards is one of them.  A member may request additional features to a credit card account that will require a change in the disclosures.  So, must you send a change in terms or a set of brand new initial disclosures?  Here's what the Fed is thinking.

    The Board understands that, when an existing cardholder requests new features or benefits, disclosure of the new terms pursuant to § 226.6(b) may be preferable because the cardholder generally will not want to wait 45 days for the new terms to take effect (as would be the case if notice were provided pursuant to § 226.9(c)(2)). Thus, this comment is intended to provide card issuers with some flexibility regarding whether to treat the substitution or replacement as the opening of a new account (subject to § 226.6(b)) or a change in the terms of an existing account (subject to § 226.9(c)(2)).
    However, the Board does not intend to permit card issuers to circumvent the disclosure requirements in § 226.9(c)(2) by treating a change in terms as the opening of a new account. Accordingly, the comment would further state that whether a substitution or replacement results in the opening of a new account or a change in the terms of an existing account for purposes of the disclosure requirements in §§ 226.6(b) and 226.9(c)(2) is determined in light of all the relevant facts and circumstances.  74 Fed. Reg. 54131.

The Fed proposes that creditors look at the following factors:

1. Does the member get a new credit card?
2. A new account number?
3. New features?
4. Does the card work at a greater or lesser number of locations after the change?
5. Was it done on an individual basis?
6. Does the card become a different type of card (does a charge card become credit card, for example)

When most of these facts are present, the substitution or replacement is really the opening of a new account, for which new account disclosures are required.  Note: the Fed is looking for comments on this issue.

If you want to read more about this issue, here's the part of the proposal that deals with this issue.

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I just realized that is is November.  Where did this year go?