Compliance Blog

Written by Steve Van Beek

If you are located in either the Cleveland or New York City areas, you might be able to get a chance to listen to the CFPB in-person.  The CFPB has two "Industry Discussions" listed for later this spring.

• Friday, April 27th in Cleveland, Ohio
• Friday, May 4th in New York City, New York

You can also hear from CFPB Director Cordray during NAFCU's Free Webcast on April 24th.  The Webcast is open to all credit unions but registration is required.    

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Last Thursday, the CFPB issued a proposed rule to amend Section 1026.52(a) of Regulation Z.  I know what a lot of you are thinking - another change to the Credit CARD Act regulations?  Another clarification?

Well, yes.  But, this one shouldn't impact many credit unions as it relates to the cap on fees credit unions can charge during the first year of a credit card.  Here is the current 12 CFR 1026.52(a):

"§ 1026.52   Limitations on fees.

(a) Limitations prior to account opening and during first year after account opening.(1) General rule. Except as provided in paragraph (a)(2) of this section, the total amount of fees a consumer is required to pay with respect to a credit card account under an open-end (not home-secured) consumer credit plan prior to account opening and during the first year after account opening must not exceed 25 percent of the credit limit in effect when the account is opened. For purposes of this paragraph, an account is considered open no earlier than the date on which the account may first be used by the consumer to engage in transactions.(emphasis added).

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What is the CFPB proposing?  The CFPB is proposing to remove the "prior to account opening" language from Section 1026.52(a) and, thus, the restriction on fees would only cover fees charged after the account is opened.  

Why is the CFPB doing this?  Isn't this weakening the rule?  The Federal Reserve originally wrote this rule and was sued by an institution arguing the Fed went beyond the requirements of the Credit CARD Act.  There are good stories on the CFPB's move here (New York Times) and here (Washington Post).   

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The Short Version.  This proposal won't directly impact most credit unions as they are not offering credit cards with large amounts of fees in the first year or prior to account opening.  However, other card issuers might be able to move back to their prior business model of charging processing fees prior to account opening.    

To see the specifics of the proposed change, click here to see the Federal Register (the bracketed text indicates that text - "prior to account opening" would be removed if the rule was finalized).   

Note:  If you are looking for which fees count toward the 25% cap during the first year - scroll down in the staff commentary to 12 CFR 1026.52(a)(2).