Credit CARD Act; Contact Us
Posted by Steve Van Beek
First things first, the language of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit CARD Act) is available on NAFCU's Compliance website (available to both NAFCU members and non-members).
Ok, only 33 pages. Â Not so bad, right? Â Unfortunately, there appears to be a trade-off where we received brevity in exchange for confusion. Â Trust me, the law is much harder to read than the regulations. Â
How did we get here?  Congress codified, strengthened, enhanced and moved up many of the protections that NCUA and the other federal regulators adopted in their regulation on Unfair or Deceptive Acts or Practices (UDAP - Part 706 of NCUA's Regulations). Congress also added new restrictions on credit card accounts.   Â
What does this mean?  The protections on credit card accounts are now law.  The Credit CARD Act amended the Truth in Lending Act.  In contrast, the Federal Reserve (and NCUA) had adopted the UDAP regulations under existing authority under the Federal Trade Commission Act (FTC Act).  Six of one or a half dozen of the other, right?  No, again.  The fact that these protections are now codified in laws rather than regulation means they are harder to change. Â
However, there is a glimmer of sun for federal credit unions. Â The Credit CARD Act applies to a broader scope of institutions than the UDAP regulations ensuring each card issuer is operating on a level playing field. Â For example, state-chartered credit unions were not subject to the UDAP regulations (because for unfair practices they are regulated by the FTC) but they will be subject to the Credit CARD Act. Â
What do we need to do?  Review the new Credit CARD Act and determine how your card operations need to adjust to comply with the law.  The law covers a wide variety of situations, such as gift cards, credit cards to persons under the age of 21, and the timing to send periodic statements - just to name a few. Â
When is the effective date?  The majority of the provisions of the Credit CARD Act become effective 9 months after President Obama signed the bill into law.  President Obama signed the Act on May 22, 2009 making February 22, 2010 the effective/compliance date for many of the provisions.  Note:  This is more than 4 months prior to when the UDAP regulations are slated to become effective (July 1, 2010). The UDAP regulations are still scheduled to be implemented - the Credit CARD Act does not mean credit unions do not need to be follow UDAP - though the regulators may amend the UDAP regulations at a future date.
Editor's Note: The original post accidently listed February 22, 2009 as the effective date - it is, rather, February 22, 2010.
However, Congress determined that two sections of the Credit CARD Act warranted earlier effective dates 90 days after enactment - August 20, 2009.  Yes, as in 70 days from today. Â
Which provisions are effective August 20, 2009? Â
Section 101. Protection of Credit Cardholders. (a) Advance Notice of Rate Increase and Other Changes Required. Â (see pages 2-3 of the Credit CARD Act PDF).
Advanced NoticeÂ
Beginning on August 20, 2009, credit unions will need to send an advanced notice of (a) an increase in an APR; or (b) other significant changes - including an increase in any fee or finance charge. Â The advanced notice must be 45 days before the effective date of the change. Â The Federal Reserve Board will determine what "other significant changes" trigger the advanced notice. Â Until the Federal Reserve provides clarity in this area, credit unions may want to use Regulation Z, 12 CFR 226.9(c), as guidance for which terms of the account might be considered significant. Â Â
Right to Cancel
A "Right to Cancel" statement must accompany the advanced notice to the member. Â The statement needs to inform the member of his/her right to cancel the account and, in effect, reject the changes. Â The Federal Reserve Board is required to establish rules regarding the "Right to Cancel." Â It is unclear what information would be required to accompany this "Right to Cancel" statement. Â My best guess is that the credit union would need to inform the member of what canceling the account would entail (i.e. no new purchases; retain existing APR and terms; repayment options, etc.) Â Additionally, the law prohibits a credit union from requiring a member who exercises his right to cancel the account to repay the obligation in full. Â Rather, the credit union needs to provide a repayment method that is no less beneficial than one of the methods in Section 171(c)(2) of the Truth in Lending Act (see page 4 of the Credit CARD Act PDF). Â Â
Section 163.  Timing of Payments.  (see page 9 of the Credit CARD Act PDF).
Credit unions need to mail or deliver periodic statements 21 days or more before the payment due date in order to charge a late fee. Â Note: This section applies to all open end consumer credit plans and is not limited to credit cards.
Additionally, another section of the Credit CARD Act, Section 106 (on page 9), requires the payment due date for a credit card account to be on the same day each month (i.e. the 18th of the month).  If the due date falls on a day the credit union does not accept payments, the credit union may not treat a payment received the next business day as late. Note: Section 106 is not effective until February 22, 2010 but credit unions should consider its impact when making any needed changes to their credit card billing cycles.
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NAFCU will be relaying information regarding all the new rules and requirements as fast as we can. Â Be on the lookout for a big overview blog posting from Anthony tomorrow summarizing many of the upcoming compliance deadlines.
NAFCU is planning a webcast on the Credit CARD Act in August, so stay tuned for information on that webcast.
As always, NAFCU members can call or e-mail us with their questions. Â We have created a "Contacting NAFCU Compliance" cheat sheet that is available on our compliance homepage. Â Talk to you soon. Â