Compliance Blog

Written by Jennifer Aguilar, Regulatory Compliance Counsel, NAFCU

A compliance officer sits at her desk dutifully reviewing a new policy. She is calm and relaxed – it’s almost time to go home for the day and her favorite song just came on the radio that sits in the corner of her office. Then, a member of the credit union's lending staff knocks on her door. "I have a credit card question for you," he says. Suddenly, calm and relaxed goes out the window and she starts to feel a little like this:

Credit card compliance – the three little words that strike fear in even the most seasoned compliance officer. In an effort to make these issues less of a nightmare, NAFCU has written numerous articles and blogs on credit card compliance. Today's blog provides a refresher on yet another one of these rules: the right to reject.

Section 1026.9(c)(2)(iv)(B) explains that members have the right to reject any "significant change in account terms." This NAFCU blog discusses which terms are significant, but generally, terms required to be disclosed at account opening are considered significant terms. This includes, among other things, the minimum interest charge, transaction fees, late payment fees and over-the-limit fees. When a credit union makes changes to these fees, the member has the right to reject the change. If a member does reject the change, credit unions are permitted to terminate or suspend credit privileges, provided the credit card agreement gives the credit union the authority to do so.

The rule also requires credit unions to inform members of their right to reject significant changes. This required information must be provided with the change in terms notice, meaning it must be provided at least 45 days before the effective date of the change. The notice must provide the following information about the member's right to reject:

• A statement that the member has the right to reject the change before the effective date;
• Instructions on how the member can reject the change, including a toll-free number the member can use to notify the credit union of the rejection; and
• A statement that if the member rejects the change, further advances under the plan will be terminated or suspended, if applicable.

Model Form G-21 provides the following sample language for the notice:

"You have the right to reject these changes, unless you become more than 60 days late on your account. However, if you do reject these change, you will not be able to use your account for new transactions. You can reject these changes by calling us at 1-800-000-0000."

In addition to these requirements, the rule provides a list of changes that are not subject to the right to reject. These changes include: increases in the required minimum payment, fees increased under section 1026.52(b)(1)(i) and (ii), changes to the APR, increases to a fee previously reduced under the SCRA and changes resulting from the member's failure to make the minimum payment within 60 days of the payment's due date. When these changes are made, a change in terms notice is still required but the required information regarding the right to reject may be omitted.

When reviewing this list, most of the changes listed make sense, but one seemed to jump out: changes to the APR. Upon first read, this did not make sense as the Credit Card Act is all about enhancing consumer protections and contains a number of other limitations related to the APR. However, upon further digging, no right to reject exists for APR increases because section 1026.55 prohibits credit unions from applying the increase rate to past transactions. If members do not want to pay the increased rate on future transactions, they can simply choose not to make any future transactions.