Compliance Blog

Posted by Anthony Demangone

The financial services industry is really caught in a pickle.  The economy is bad, so our loan portfolios are hurting.  Every lending regulation known to man is being re-worked, so our heads are hurting.  The corporate credit union situation has us writing some unexpected checks to NCUA.  So our financials are hurting.  And to top it off, many forms of non-interest income are under attack.  I'm wouldn't be surprised to find out that we're under attack from aliens.  Its been that kind of year.

I mentioned non-interest income.  We all know about overdraft protection and interchange.  But the Credit CARD Act will chip away at over-the-limit fees.  In short, it will force us to obtain a member's consent before we can assess over-the-limit fees.  Here's the portion of the Regulation Z proposal that deals with this issue.  The restriction will become effective, in one form or another, by February 22, 2010.

Here are the highlights:

• You must have a member's express consent before you can charge an over-the-limit fee. Before obtaining consent, you must disclose the amount of the fee and any possible increase in the APR if the member goes over the limit.  You only need to obtain this consent once.
• The consent must be separate.  You cannot, for example, combine consent to over-the-limit fees with the application's signature line.
• If the member consents, you also have to provide notice of their right to revoke the consent on any periodic statement showing an over-the-limit fee.
• The proposal affects all consumers, so existing account-holders are NOT grandfathered.  In other words, this would apply to your entire credit card portfolio.
• Even if the consumer consents, you still are limited to no more than one over-the-limit fee per cycle.  And if the member goes over the limit, you can only charge a fee for that over-the-limit transaction for three billing cycles, if the member remains over the limit.
• A proposed comment clarifies that if you have a policy and practice not to pay or authorize transactions that you reasonably believe would take the member over his or her limit, you would not be subject to these over-the-limit requirements.

I can tell you that many organizations have announced plans to scrap these fees altogether.  With that in mind, before I would get too deep into research on this issue, I'd first determine whether your credit union wishes to continue charging these fees.  I'd also make it clear to those responsible for budgeting this fact: even if your credit union wishes to continue charging over-the-limit fees, you should see the revenues generated from over-the-limit-fees drop precipitously in 2010.