ABA s Summary of Credit CARD Act Regulation Z Provisions To go into effect February 22, 2010 Time of disclosures ( 5(b)) Released September 2009 For purpose of determining whether new account disclosures or change in terms disclosures are required, the commentary lists factors. Same due date each month ( 7)(b)(11) Due date must be the same day of the month. Repayment Disclosures (minimum payment disclosures) ( 7(b)(12) 1. Warning 2. Number of years to repay. If less than two years, in months 3. Total cost 4. Monthly amount to repay within 36 months 5. Savings compared to paying only the minimum payment 6. Toll-free telephone number about credit counseling 3 government-approved organizations in customer s state, verified annually Adjustments if negative amortization. Exceptions for accounts paid in full 2 months. No exemption for fixed repayment period. Board solicits comment on whether to retain exemption. Format: Due date, late payment disclosures, ending balance, and repayment disclosures on first page. Advance notice of term change ( 9(c)) Right to reject: Limited application because rate cannot increase on existing balances, and other reasons. Exceptions: Promotional rates: Must be in writing and certain terms in close proximity For phone promotional rates by merchants, disclosures must be provided as soon as practicable after the first transaction). POS offers, for brief period, may disclose up-to rate until systems updated.
2 Work-outs. Must be in writing. By customer agreement. Agreement does not include request to re-open a closed account or upgrade an existing account (and being treated as change in term rather than new account), Board seeks comment. Disclosures upon renewal of credit or charge card ( 9(e)) Penalty increase ( 9(g)) Appears that card issuer must wait for 60 late payment before sending 45 day notice. For credit cards, reason for increase and that it will cease after 6 consecutive minimum payments. Formatting requirements not effective until July. Requirements for payments ( 10) Cut-off times. Reasonable times provided no earlier than 5PM which suggests it could be later for some types of payments. Applies to all types of payments. Time zone of the location specified by the creditor. Board requests comment whether this is appropriate for non-mail transactions. Card issuers that are financial institutions that accept payments in person at a branch, may not have cut-off earlier than close of business. However, it only applies to payments made to employees, not those placed in a slot, for example. Crediting of payments when creditor does not receive or accept payments on due date. If due date is day when creditor does not receive payment by mail, may not treat it as late if received next business day. However, if accepts payment by method other than mail on due date, it may treat as late even if it doesn t accept mail payment.
3 Limitations on fees related to method of payment. Generally, card issuers may not impose fee for payment method unless it involves an expedited service. Expedited means crediting it the same day and using a live customer. Late payment caused by change in address. Generally, issuers may not impose late fee or finance charge for late payment if material change in the mailing address or procedures for handling payments and the changes causes a material delay in crediting the card holder during 60- day period following change, no late fee may be imposed. Treatment of credit balances; timely settlement of estate debts ( 11(c)) Issuers must have procedures to ensure estate administrator may resolve outstanding balances of deceased customers in timely manner. Resolve means determine the amount owed and pay the balance. Creditors must provide amount of balance in timely manner (30 day safe harbor) and may not impose fees and charges on deceased consumer s account after receiving request from administrator. Ability to repay ( 51) Ability to repay Card issuers must consider ability of consumer to make the required minimum payment based on the consumer s income or assets and the consumer s current obligations and have reasonable policies and procedures to consider this information. Card issuer does not comply if it doesn t review these factors or issues a card to someone who does not have income or assets. Card issuers may also consider credit reports and credit scores and other factors. Reasonable method for estimating required minimum payment safe harbor: assume utilization of the full credit line the issuer is offering. It is not clear whether issuers must also make this assumption for other lines of credit applicant has open. Board seeks comment. In considering current obligations, issuer may rely on information provided by consumer or credit report. Proposal does not require issuers to verify information before the account is opened or credit line increased. Board seeks comment.
4 Young consumers. Written application. Co-signer or joint applicant with ability to repay. Date of submission is date to determine age. Issuer is not required to accept an application from a young person without signature of co-signer unless refusal would violate Regulation B. For example, if the card issuer permits other applicants of non-business credit card accounts who have attained the age of 21 to provide the signature of a co-signer...the card issuer must provide this option to applicants under 21. Limitations on fees (fee harvesting) ( 52) With exception of late payment, over-the-limit, returned payment, and optional fees, if a card issuer charges any fees to a credit card account during the first year, it may not charge fees that total more than 25% of credit limit when account is opened. Allocation of payments ( 53) Timing of determining balance: may use date preceding billing cycle ends, date payment is credit to account, or any day in between. If transaction in dispute, issuer must apply payment in manner that avoids or minimizes any reduction in the amount of that claim or defense. Limitations on imposing finance charge as result of loss of grace period ( 54) Prohibition against two-cycle billing. Partial grace period requirement. Limitations on increasing APR, fees, and charges ( 55) Limits provision to fees and charges for which 45-day notice required that would be applied to an existing balance (APR, annual fee, fixed finance charge, minimum interest charges, and insurance). Outstanding balance is determined by date of transaction. To address operational difficulties, if transaction that occurred within 14 days after notice is not charged to account prior to effect date (45 days), the date the issuer receives the transaction is used to determine the outstanding balance.
5 Temporary rate exception. Exceptions for variable rates and delinquent accounts. Variable rate exception. Conversion to variable rate only permitted if specific exception. Thus, fixed rate on existing balances may not be converted to a variable rate. Advance notice exception: does not apply to account openings, as defined. New account is one which, if more than 30 days after the new account is opened, consumer has option to obtain extension of credit for each account. One year prohibition against rate increases applies. New account excludes co-branded upgrades and acquired cards. Delinquency exception. Must provide reason for increase and that increase will terminate not later than 6 months after date of imposition if creditor receives required minimum payments on time for that period. Terminate means reduce APR to rate that applied prior to increase (for that balance). Six month period begins first payment due following effective date of increase. Issues must reduce APR etc. for transactions that occurred within 14 days of advance notice. Workout and temporary hardship arrangement exception Arrangement must be in writing. Due to completion or failure to comply with workout arrangement, rate to any transactions that occurred prior to the arrangement may not exceed original rate. Servicemembers Civil Relief Act exception. Treatment of protected balances. Continuing application of Section ( 55)
6 Requirements for over the limit transactions ( 56) OTL transaction means an extension of credit to complete a transaction that causes an account to exceed the limit. The terms does not cover the assessment of fees or interest charges that may cause the consumer to exceed the credit limit. Notice of right may be oral or written. Opt in notice must be immediately prior to and contemporaneously with obtaining consent. If transaction goes over the limit and customer has not opted in, issuer may not charge fee. Consent may be obtained by telephone, electronic, form at application or at account opening. Board seeks comment on whether opt-in notice should be segregated. Issuer must retain evidence of opt in for at least 2 years. Board seeks comment on whether issuer should provided written confirmation of opt in if consent is by phone or in person. No fee permitted if final transaction amount exceeds amount submitted for authorization. Method of revocation must be equally available to opt in... Issuers may provide opt in with first periodic statement sent after effective date. Board seeks comment on whether issuer may do so prior to effective date. Revocation notice must be provided on front page on any billing statement containing a OTL fee. Notice must include amount of fee including an up to fee. Board seeks comment on whether additional guidance is necessary it the fee is determined by other means, such as a percentage of the OTL transaction. Proposal permits issuer to briefly describe benefits. Board seeks comment on whether rule should permit other information. Creditors must implement revocation request as soon as reasonably practicable. Board seeks comment on whether a safe harbor (e.g 5 business days) may be helpful and whether the time to revoke should be as soon as the time to implement an opt-in.
7 OTL fees are limited to once per cycle and only once in each of the 2 subsequent billing cycles for the same OTL transaction. Prohibited practices Prohibition against more than one OTL fee per billing cycle and against OTL fees for more than 3 billing cycles for same OTL transaction if balance not reduced. Creditor may not impose OTL fee because of creditor s failure to promptly replenish following payment. Prohibition against conditioning amount of limit on opt in. Prohibition against OTL fee if limit exceeded solely because of fees or interest charged during billing cycle. Special rules for marketing open-end credit to college students ( 57) Definitions: College student credit card: card issued to any college student. College student is anyone attending an institution of higher education (as defined). Affiliated organization alumni organization or foundation affiliated with institution of higher education. Public disclosure of agreements On website. Available upon request provided free and reasonable. No redactions. Prohibited inducements Issues may not offer students any tangible item to induce them to apply for open end credit plan offer is made on campus, near campus (within 1,000 feet of border) or at event sponsored by institution. Applies to credit cards, helocs, and other open-end credit. Tangible item includes physical items.
8 Board seeks comment on whether there are other ways to determine whether location is considered near the campus. Applies to offers of tangible items sent to locations through the mail. Annual report to the Board Card issuers must register with Board and submit annual report containing the agreement, memo of understanding, total dollar amount of payments to the institution, number of accounts opened during period, total number of accounts. Board seeks comment on whether additional items should be required in the report. Internet posting of credit card agreements ( 58) Issuers must register with Board and provide phone number and email address of contact person. Issuers must submit to Board: o Agreements offered as of last business day of preceding calendar quarter that have not previously been submitted o Any agreement previously submitted that was modified o Notification of withdrawal of any previously submitted agreement. Issuers must submit any change. Board seeks comment on whether issuers are likely to make technical changes to agreements without simultaneously making substantive changes, whether requiring resubmission following any change (however minor) would impose significant burden and what standard the Board should use. Agreement means a written document evidencing terms of legal obligation between issuers and consumer under a credit card account. The agreement includes the pricing information. Board seeks comment on definition of agreement and on whether more or less information should be included. De mimimis exception: agreements need not be submitted if issuers has fewer than 10,000 accounts. Board seeks comment on 10,000 number and whether it should create a de minimis exception applicable to a small credit card plan offered by an issuer of any size. Issuers must establish and maintain a publicly available website and make agreements offered to the public available through the website.
9 Providing agreements to customers With regard to any open account, all issuers must post the cardholder s agreement on its website OR promptly provide a copy to the cardholder upon the cardholder s request. Cardholder must provide opportunity to request by both using website and calling toll-free number provided on website identified as to purpose. Issuers must send or make available copy of agreement no later than 10 business days after receipt of request. Board seeks comment on whether the agreement should be available sooner or later.