Compliance Blog

Posted by Anthony Demangone

This section amends Section 127(c) Truth in Lending Act by adding a new section to protect consumers under the age of 21.  It takes effect February 22, 2010.

In short, credit unions will not be able to issue open end credit (note – this is not limited to credit cards) to a member under the age of 21 unless: a) A cosigner, including a parent, spouse, or legal guardian (or any other person) over the age of 21 co-signs; or b) The consumer under the age of 21 provides financial information showing independent means of repaying any obligations. The Federal Reserve shall issue regulations that will give creditors the standards for determining the ability to repay.

Here's a mini-action plan:

1. Determine if you extend credit to members under the age of 21.

2. If you do, create policies and procedures to reflect the new requirements.  They don't need to be all that complicated.  Simply, they have to be able to show the ability to repay, or they need a cosigner.  We'll have to wait for the Fed to give us clear guidance on what will satisfy the "ability to repay" requirement.  For example, would a student loan qualify as income?   Only time, and the Fed, will tell.

Let me take off my compliance hat for a moment. I hope these requirements don't scare credit unions away from serving the "under 21" market.  I, for one, plan on getting Briggs and Kate their own credit card once they turn 16.  They'll each get a small credit limit, and we'll go over their statements each month when they come in.  And they'll either get a job to pay off purchases, or I'll give them plenty to do around the house.

Personally, I think credit unions are the perfect place to get your first credit card.  There is a huge opportunity here.  As a parent, who would you want providing that first card?  A national credit card company, or your credit union? 

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Great - the Fed certainly doesn't know my schedule.  As I'm in the middle of a webcast, they dropped the final rules that implement the provisions of the Credit CARD Act that take effect on August 20, 2009.  Access the interim final rule here.

And here's a summary from the Fed about what's inside:

The interim final rule implements the requirements in the Credit Card Act as follows:

• Creditors must provide written notice to consumers 45 days before the creditor increases an annual percentage rate on a credit card account or makes a significant change to the terms of a credit card account.
• Creditors must inform consumers in the same notice of their right to cancel the credit card account before the increase or change goes into effect. If a consumer does so, the creditor is generally prohibited from applying the increase or change to the account.
• Creditors generally must mail or deliver periodic statements for credit cards and other open-end consumer credit accounts at least 21 days before payment is due.

There you have it.  The Fed clarified that the 21-day requirement extends to all open-end lending. Note, there's a quasi, short-lived exception to this requirement (see below).  The final rule is 107 pages long, so we'll need some time to digest it.  Im sure you will, too.

Stay tuned

Editor's Note: Here's language that specifically addresses this section from the preamble to the final rule:

The Board understands that, with respect to open-end consumer credit plans other than credit cards, it may be difficult for some creditors to update their systems to produce periodic statements by August 20, 2009 that disclose payment due dates and grace period expiration dates (if applicable) that are consistent with the 21-day requirement in revised § 226.5(b)(2)(ii). As a result, it is possible that, for a short period of time after August 20, some periodic statements for open-end consumer credit plans other than credit cards may disclose payment due dates and grace period expiration dates (if applicable) that are technically inconsistent with the interim final rule. In these circumstances, the creditor may remedy this technical issue by prominently disclosing elsewhere on or with the periodic statement that the consumer’s payment will not be treated as late for any purpose if received within 21 days after the statement was mailed or delivered. Under no circumstances does revised § 226.5(b)(2)(ii) permit a creditor to treat a payment as late for any purpose if that payment is received within 21 days after mailing or delivery of the periodic statement.

What is a short period of time?  I couldn't fine a definite answer this morning as I skimmed the final rule while eating Cheerios.  Stay tuned.