Fed Issues Final Reg Z Rules, NCUA Meeting Revision; Flood
Posted by Anthony Demangone
Yesterday, the Federal Reserve issued a final regulation to implement the last two provisions of the Credit CARD Act. Â The two provisions address: 1) proportional and reasonable penalty fees on credit cards; and 2) Reviews of APR increases for credit card accounts. Â The Fed provided this 45,000 foot overview:
Among other things, the final rule, which amends Regulation Z (Truth in Lending):Â Â
- Prohibits credit card issuers from charging a penalty fee of more than $25 for paying late or otherwise violating the account's terms unless the consumer has engaged in repeated violations or the issuer can show that a higher fee represents a reasonable proportion of the costs its incurs as a result of violations.
- Prohibits credit card issuers from charging penalty fees that exceed the dollar amount associated with the consumer's violation. For example, card issuers will no longer be permitted to charge a $39 fee when a consumer is late making a $20 minimum payment. Instead, the fee cannot exceed $20.
- Bans "inactivity" fees, such as fees based on the consumer's failure to use the account to make new purchases.
- Prevents issuers from charging multiple penalty fees based on a single late payment or other violation of the account terms.
- Requires issuers that have increased rates since January 1, 2009 to evaluate whether the reasons for the increase have changed and, if appropriate, to reduce the rate.
In addition, the Fed created this consumer brochure to help explain the changes to consumers.  This may be a great training tool for front line staff.Â
NAFCU is preparing a Final Regulation to give you an overview of the final rule. Â I'll alert you when that is available. Â With that in mind, here are some ideas on how I'd tackle this issue:
- First, keep in mind that this rule only applies to credit cards.  The limitations on fees won't affect any other products.  The requirement to revisit APR increases only affects credit cards as well.
- Contact your third party vendors that help you with your credit card portfolio.  Make sure they are aware of the final rule, and ask them how they will help you comply with the changes.  For example, the "safe harbor" fee is $25.  But you can charge $35 if the member has been late on one of his or her last six payments.  In addition, late fees generally cannot be more than the underlying transaction.  So, if a member is late on a $15 minimum payment credit card payment, you won't be able to charge more than $15.  Will your data processing system be able to handle the variables?  And what about your disclosures? Â
- Keep in mind that if you change your late fees for credit cards, that is something that takes board approval for FCUs per your bylaws.  Check out your bylaws to determine if that language is in there.
- Start looking at your credit card portfolio to determine which cards have had an APR increase since January 1, 2009. Â That is the universe you'll be working within for the APR review portion of the final rule.Â
- Consider signing up for the NAFCU webcast, where we'll detail this final rule.  It is scheduled for July 14.  (Bastille Day, no?) It will be delivered by Steve, Sarah, et moi.   Â
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This Thursday's NCUA Board meeting agenda has been changed. One item has been deleted from the open session ( Proposed Rule, Interest Rate Risk Policy) and one item has been added to the closed session (Consideration of Supervisory Activities). The revised agenda for this weekâÂÂs meeting is available online here.
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The NFIP lapses have been confusing for lenders, to say the least.  NAFCU sent this letter to the Hill on Monday evening. And we joined in sendingÂ
this letter yesterday.  Both letters urge Congress to reauthorize the NFIP as soon as possible.Â