UDAP and secured credit cards
I wanted to pass this along. We've had a number of questions about UDAP and whether it will stop credit unions from offering share-secured credit cards. As you may recall, one of the new UDAP no-nos (effective July 1, 2010) concerns security deposits and credit cards. In short, the final rule prohibits or limits the financing of security deposits and fees onto the card's balance. Share secured credit cards are a different animal altogether. Footnote 148 to the final rule clarifies the distinction. Here's what it says:
For a consumer who has sufficient funds, a secured credit card account is generally a more beneficial product than a high-fee subprime credit card. Secured credit cards generally require the consumer to provide a cash collateral deposit that is equal to the credit line for the account. For example, in order to obtain a credit line of $300, a consumer would be required to deposit $300 with the lender. Generally, the consumer can receive the deposit back if the account is closed with no outstanding balance. In some cases, these deposits earn interest. See OTS Examination Handbook, Asset Quality, Section 218 Credit Card Lending at ç 218.3 (May 2006). The final rule does not limit issuersâ ability to offer secured credit cards. Indeed, by restricting the financing of security deposits and fees, the final rule may encourage issuers to expand secured credit card offerings.  (Emphasis added.)
For more details, you can access NCUA's final UDAP rule here.