With the ink barely dry on the new Regulation Z (Truth in Lending) credit card rules, the Federal Reserve Board has issued proposed amendments. The Fed cited the need to "resolve confusion" regarding compliance with the new rules, which implemented the Credit Card Accountability Responsibility and Disclosure Act of 2009.

Highlights of the proposed amendments, published in the Federal Register on November 2, 2010, include the following:

  • With limited exceptions, the CARD Act provides that issuers may not charge, during the first year a credit card account is open, total fees exceeding 25 percent of the account's initial credit limit (or 25 percent of any lower credit limit that applies during the first year). The proposal would provide that application and similar fees required to be paid before account opening are included in the limit on total fees that may be charged during the first year an account is open. This represents a change from the existing regulation and corresponding Fed guidance. Additionally, the proposal would clarify that (1) an account is considered open no earlier than the date on which the consumer may first use it to engage in transactions, and (2) the total fee limit includes not only fees charged to the account but also fees collected from other sources, such as those charged to a consumer's deposit account.

  • The proposal would substantially expand the sweep of the CARD Act provisions applicable to "credit cards" by providing that an account number that accesses an open-end line of credit to purchase goods and services creates a "credit card," even if there is no plastic or other tangible card.

  • The CARD Act rules generally require that consumers receive 45 days' advance notice of certain fee increases. The proposal would permit a card issuer to increase a temporary or promotional fee without such notice if the issuer provided the consumer with an advance disclosure of the period during which the lower fee would apply and the fee that would apply afterward.

  • The proposal would provide that any open-end (not home-secured) plan with a variable rate that is subject to a fixed minimum interest rate or "floor" does not qualify for the variable-rate exception to the 45-day advance notice requirement. That exception applies to increases in a variable annual percentage rate based on an index that is not under the creditor's control and available to the general public.

  • The proposal would make promotional programs that waive or rebate finance charges for a specified period subject to the same limitations on rate or fee increases as promotional programs that charge a reduced rate or fee for a specified period. Thus, a card issuer that offers to waive interest charges if the cardholder pays a purchase within a promotional period could not (1) provide a promotional period of less than six months; (2) prospectively terminate a promotional benefit, except for a payment delinquency of at least 60 days or failure to meet the promotional terms for the entire promotional period; and/or (3) retroactively terminate promotional benefits for any reason.

  • The proposal would provide that the "conforming" payments that must be credited as of the date of receipt are not limited to payments received by a means specified on or with the periodic statement but include any specific payment method that a creditor "promotes" (such as by disclosing on its Web site or stating in its advertisements that payments can be made at its branches). It would also prohibit a third-party service provider or other third party from charging a separate fee for receiving a credit card payment unless it was for same-day crediting of a payment made with the help of a customer service representative.

  • The proposal would allow a card issuer to allocate the amount paid by a consumer in excess of the required balance to a secured balance if requested by the consumer, even if the rate on other unsecured balances is higher.

  • In evaluating a consumer's ability to make the required payments before opening a new credit card account or increasing the credit limit on an existing account, a card issuer would be required to consider the consumer's independent ability to make the payments and could not consider only household income.

  • The proposal would close a gap inadvertently created by the CARD Act and CARD Act rules by adding language requiring that, for open-end consumer credit plans not accessed by a credit card and without a grace period, creditors must adopt reasonable procedures to ensure that periodic statements are mailed or delivered at least 14 days before the date on which the required minimum periodic payment must be made to avoid being treated as late for any purpose, and that payments received within 14 days after mailing or delivery of the periodic statement are not treated as late for any purpose.

The proposal also contains clarifications to various other Reg Z provisions, including those dealing with (1) the tabular disclosures that must be provided with credit and charge card applications and solicitations and the initial disclosures for open-end (not home-secured) credit; (2) billing error resolution procedures; (3) required disclosures in periodic statements, change-in-terms, and other subsequent notices and advertising; (4) limits on penalty fees and on increasing rates and fees; (5) Internet posting of credit card agreements and the submission of such agreements to the Fed; and (6) reevaluation of rate increases. Comments on the proposal must be received by January 3, 2011.

Ballard Spahr’s Consumer Financial Services Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws throughout the country, and its skill in litigation defense and avoidance (including pioneering work in pre-dispute arbitration programs). For more information, please contact group Chair Alan S. Kaplinsky, 215.864.8544 or kaplinsky@ballardspahr.com; Vice Chair Jeremy T. Rosenblum, 215.864.8505 or rosenblum@ballardspahr.com; John L. Culhane, Jr., 215.864.8535 or culhane@ballardspahr.com; Barbara S. Mishkin, 215.864.8528 or mishkinb@ballardspahr.com; or Mark J. Furletti, 215.864.8138 or furlettim@ballardspahr.com.


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