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Sep 24, 2009
Categories: Consumer Lending

Updated Overview of Credit CARD Act

Posted by Steve Van Beek

NAFCU has updated its Overview of the Credit CARD Act (NAFCU-member only).  This update goes into further detail for the provisions which will be effective February 22, 2010.  Obviously, we are all waiting to see how the Federal Reserve regulates these provisions in its proposed (and then final) regulations.  

Each updated section includes a topic list, effective date, sumamry, analysis, and related notes to help explain some of the upcoming requirements.  Below is an example of one of the updated sections.  Here is a sample:

"Sec. 203. Renewal Disclosures.

Topics: Renewal Disclosures for Annual Fees

Effective Date: February 22, 2010. Blog Posting Here

Applies to: Credit Cards with Annual Fees

Summary: This section amends Section 127(d) of TILA which details the process by which card issuers charge annual fees on existing accounts. The section removes the prior paragraph (2) which was a special rule that allowed card issuers the ability to provide a renewal disclosure on the periodic statement where the annual fee was imposed – if the card issuer also allowed 30 days for the consumer to reject the annual fee and close the account. This option has been removed from TILA.

Analysis: If your credit union relied on the “special rule” [or “delayed notice” as it is called in Regulation Z – 12 C.F.R. 226.9(e)(1)] for providing the renewal disclosure for a credit card with an annual fee, you will need to change your procedures due to the removal of the “special rule.”

After February 22, 2010, Section 127(d) of TILA will appear as follows:

“(d) DISCLOSURE PRIOR TO RENEWAL.—

(1) IN GENERAL. -- A card issuer that has changed or amended any term of the account since the renewal that has not been previously disclosed or imposes any fee described in subsection (c)(1)(A)(ii)(I) or (c)(4)(A)(i) shall transmit to a consumer at least 30 days prior to the scheduled renewal date of the consumer's credit or charge card account a clear and conspicuous disclosure of—
(A) the date by which, the month by which, or the billing period at the close of which, the account will expire if not renewed;
(B) the information described in subsection (c)(1)(A) or (c)(4)(A) that would apply if the account were renewed, subject to subsection (e); and
(C) the method by which the consumer may terminate continued credit availability under the account.
(2) SHORT-TERM RENEWALS.--The Board may by regulation provide for fewer disclosures than are required by paragraph (1) in the case of an account which is renewable for a period of less than 6 months.”

Therefore, the credit union would have to provide information about the annual fee or other periodic fee at least 30 days before the annual fee [or another of the fees described in subsection (c)(1)(A)(ii)(I) or (c)(4)(A)(i)] is assessed and the card is renewed. The notice must also include information on how the member can cancel the account before the imposition of the annual fee.

Note: Regulation Z, 12 C.F.R. 226.9(e)(3) does allow this 30-day advance notice of the credit card renewal to be disclosed upon the periodic statement. However, if the notices are on the back of the periodic statement – the credit union would need to make a reference to the disclosures on the front of the periodic statement.

Amendments Needed: The Federal Reserve will need to amend Regulation Z – Part 12 C.F.R. § 226.9(e) – to reflect the removal of the “Delayed Notice.” Existing language of Reg Z – 12 C.F.R. § 226.9(e) is here."

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We will continue our RESPA discussions tomorrow.  

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