Compliance Blog

Posted by Anthony Demangone

Now, on to Section 106 of the Credit CARD Act.

21-Days, and Late Fees.  As written, this section adds a new subsection to section 163 of the Truth in Lending Act. Subsection (a) of Section 163 indicates that a credit union may not treat any payment as late (i.e., they may not charge a late payment fee) unless the periodic statement is mailed or delivered at least 21 days before the payment due date. Note: This section, as written, applies to any “open end consumer credit plan” and is not limited to credit card accounts.  While most other provisions talk about a "credit card account under an open end lending plan," this section simply does not mention the words "credit card account."  And the effective date is August 20, 2009!

The effects of this provision are big.  Many credit unions use combined statements for lines of credit or for auto loans made under open-end plans.  When members open up their share account periodic statement, the open end information is there as well.  In addition, many credit unions permit members to choose their due date.  Add these two together, and you can see how credit unions are scrambling to comply.  In essence, credit unions would have had to review all their open end loans and make sure that they are sending periodic statements for those loans at least 21 days before the due date - if they wanted the right to charge a late fee.  We received scores of phone calls and emails on this very issue in the past week.

Where do we stand now?   This issue is still in flux.  Congressional intent was clarified to us during a number of meetings this week.  And Congressional and Federal Reserve leadership have been notified about our concerns.  Congressional staffers have indicated that this provision was meant to apply just to credit cards.  We'll continue to monitor this situation, and we'll see if we can clarify this even further where possible to protect credit union interests moving forward.  Keep in mind that the cleanest fix to this is a legislative fix.  Until (if) that happens, the language of the Credit CARD Act still remains. 

Due dates. Section 106 does more, though.  It adds subsection (o) to Section 127 of TILA. It requires that the payment due date for a credit card account must be the same day each month (i.e., the 18th of May, then the 18th of June, then the 18th of July, etc.)  The effective date for this provision is February 22, 2010.

Grace periods.  Finally, the section also pushes the existing Subsection (a) of Section 163 to Subsection (b), labels it "Grace Periods," and increases the requirement to 21 days (from the current 14).  If a card issuer offers a grace period, the card issuer must mail the periodic statement at least 21 days before the expiration of the grace period. In effect, the rule requires grace periods to be 21 days or longer. Note: Grace periods are not mandated by the Credit CARD Act. Rather, if a credit union offers a grace period – it must be 21 days or longer.  This goes into effect on August 20, 2009.

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We'll be back on Monday, folks.  Have a great 4th of July!  Enjoy the day, stay safe, and don't think about credit cards or Reg Z.  The only Zs you should think about are the Zzzzzzzs that occur after a extra helping of barbecue.