Replenishment of a Credit Card Line
Written by Brandy Bruyere, Vice President of Regulatory Compliance, NAFCU
Around this time of year, sometimes members will pay off a large balance on a credit card account. Perhaps they received a substantial annual or holiday bonus. Maybe they have a generous family member who gave them a gift, or want to use savings to get started on a New Year’s resolution. Regardless of the reason, credit unions sometimes ask about handling large check payments and at what point is the credit union required to credit the amount paid by the member to the account, or then replenish the line of credit.
Regulation Z does have a provision on handling payments for open-end lines of credit – including credit cards. Specifically, section 1026.10 requires crediting a payment as of the day of receipt, with some exceptions:
a. General rule. A creditor shall credit a payment to the consumer's account as of the date of receipt, except when a delay in crediting does not result in a finance or other charge or except as provided in paragraph (b) of this section.
Note that the credit union can delay crediting a payment if the delay does not result in the member incurring a finance charge or other fee. The staff commentary to the rule provides some clarity. In general, the rule does not require posting the payment on any particular date – the rule requires crediting the payment “as of” the date of receipt.
10(a) General Rule.
1. Crediting date. Section 1026.10(a) does not require the creditor to post the payment to the consumer's account on a particular date; the creditor is only required to credit the payment as of the date of receipt.
So does this mean the credit union can make sure a large check clears before crediting the payment? The commentary goes on to give some examples in different scenarios of what would comply for applying a payment as of the date of receipt:
2. Date of receipt. The “date of receipt” is the date that the payment instrument or other means of completing the payment reaches the creditor. For example:
i. Payment by check is received when the creditor gets it, not when the funds are collected.
iii. If the consumer elects to have payment made by a third party payor such as a financial institution, through a preauthorized payment or telephone bill-payment arrangement, payment is received when the creditor gets the third party payor's check or other transfer medium, such as an electronic fund transfer, as long as the payment meets the creditor's requirements as specified under §1026.10(b).
iv. Payment made via the creditor's Web site is received on the date on which the consumer authorizes the creditor to effect the payment, even if the consumer gives the instruction authorizing that payment in advance of the date on which the creditor is authorized to effect the payment. If the consumer authorizes the creditor to effect the payment immediately, but the consumer's instruction is received after 5 p.m. or any later cut-off time specified by the creditor, the date on which the consumer authorizes the creditor to effect the payment is deemed to be the next business day. (Emphasis added.)
This seems to indicate that a credit union could wait until a check is collected, so long as it is able to credit the check as of the date the credit union got the check and the member did not incur any charges as a result of that delay.
What about replenishing the line so the member’s available balance reflects the payment? While there is not a general rule for open-end credit on this topic, there is a special credit card rule to consider – section 1026.55(j) which outlines some prohibited practices for credit card accounts. Even this rule is specific to when an over the limit fee can be charged as opposed to being prescriptive for the timing of replenishing the line of credit:
(j) Prohibited practices. Notwithstanding a consumer's affirmative consent to a card issuer's payment of over-the-limit transactions, a card issuer is prohibited from engaging in the following practices:
(2) Failure to promptly replenish. A card issuer may not impose an over-the-limit fee or charge solely because of the card issuer's failure to promptly replenish the consumer's available credit following the crediting of the consumer's payment under §1026.10.
The staff commentary to this rule has an example of a delayed replenishment in the case of suspected fraud:
3. Replenishment of credit line. Section 1026.56(j)(2) does not prevent a card issuer from delaying replenishment of a consumer's available credit where appropriate, for example, where the card issuer may suspect fraud on the credit card account. However, a card issuer may not assess an over-the-limit fee or charge if the over-the-limit transaction is caused by the card issuer's decision not to promptly replenish the available credit after the consumer's payment is credited to the consumer's account.
Overall, the rule distinguishes between crediting a payment and replenishing a line of credit.. In the final rule published by the Federal Reserve, the rule writers noted that it is permissible to “delay replenishment as necessary to allow the consumer's payment to clear or to prevent potential fraud.” The Fed then went on to explain further:
[The rule] does not establish a number of days within which a consumer's available credit must be replenished by a card issuer after a payment has been credited. Because the time in which a payment may take to clear may vary greatly depending on the type of payment, the Board believes that the determination of when the available credit should be replenished should rest with the individual card issuer, so long as the consumer does not incur over-the-limit fees or charges as a result of the card issuer's delay in replenishment… (Emphasis added.)
The credit union’s account agreements may address repayment and replenishment of the line so these are worth checking as well when evaluating how to handle a larger payment on a credit card account or other open-end line of credit.
Happy Holidays! I’ll be logging off for a few days to spend some time with family this holiday season. Nolan was excited to help decorate the tree – putting all of his ornaments in the same square foot, of course. And Lemmy is up to his usual antics of not respecting personal space, but he’s a good pal to have when it starts to get cold. Hope everyone celebrating has a safe and restful holiday!