Reg Z - Credit Card APR Reviews; Consumer Compliance Outlook
Written by Steve Van Beek
Most of the attention around the Fed's most recent amendments to Reg Z have been dedicated to the "reasonable and proportional" fees requirement in 226.52. Â However, the Fed also released amendments on the "look back" provision of the Credit CARD Act (Section 101(c) which added new Section 148 to the Truth in Lending Act).
The Fed's press release is here with the 252-page PDF of the new rules here. Â The requirement to review increased APRs on credit card accounts is located in 226.59. Â Of importance is 226.59(f) which indicates when the obligation to review ends:
"(f) Termination of obligation to review factors. The obligation to review factors described in paragraph (a) and (d) of this section ceases to apply:(1) If the issuer reduces the annual percentage rate applicable to a credit card account under an open-end (not home-secured) consumer credit plan to the rate applicable immediately prior to the increase, or, if the rate applicable immediately prior to the increase was a variable rate, to a variable rate determined by the same formula (index and margin) that was used to calculate the rate applicable immediately prior to the increase; orÂ(2) If the issuer reduces the annual percentage rate to a rate that is lower than the rate described in paragraph (f)(1) of this section."  12 C.F.R. 226.59(f).  Page 188 of the PDF.
The Federal Reserve acknowledged that this could result in account reviews that need to be conducted every six months for an indefinite period of time. Â Further, the Fed explicitly rejected pleas from the industry to limit the reviews to a certain period of time after the APR increase (such as two, three or even five years). Â Here is what the Fed wrote in the preamble:
"The Board is not adopting a specific time limit for the review obligation under Ã§ 226.59. New TILA Section 148 does not expressly create such a time limit. The Board believes that creating such a time limit is not appropriate, because in some cases it may be beneficial to a consumer to have his or her rate reevaluated when market conditions change or the consumerâÂÂs creditworthiness improves, even if a number of years have elapsed since the rate increase initially giving rise to the review requirement. The Board also believes that many issuers will implement automated systems to perform the periodic reevaluation of rate increases and, accordingly, once these systems are in place, there should not be undue burden associated with the ongoing review of accounts subject to Ã§ 226.59."  Page 131 of the PDF.
Please don't shoot the messenger - especially because I'll be talking about these Section 226.59 APR review requirements during NAFCU's July 14 webcast - which will also include discussion of the reasonable and proportional fees rule and the BSA manual changes.  Â
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Also, hot off the presses is the Philadelphia Federal Reserve's latest issue of the Consumer Compliance Outlook. Â The issue includes articles on the right of rescission, private student loans, RESPA and more. Â