Compliance Blog

Posted by Anthony Demangone

Here's another Reg Z wrinkle that many folks may not have seen.  I'm speaking of 12 C.F.R. Part 226.55(d). As we know, section 226.55 provide a general prohibition on increasing credit card rates unless the increase can fit within one of our exceptions found in that section.  But look at .55(d):

(d) Continuing application. This section continues to apply to a balance on a credit card account under an open-end (not home-secured) consumer credit plan after:

(1) The account is closed or acquired by another creditor; or

(2) The balance is transferred from a credit card account under an open-end (not home-secured) consumer credit plan issued by a creditor to another credit account issued by the same creditor or its affiliate or subsidiary (unless the account to which the balance is transferred is subject to § 226.5b).

In other words, if you close a credit card account, or it is acquired by another creditor in a merger or acquisition, or if the balance is transferred from one account to another account by the same creditor - the protections of 226.55 come along for the ride.  The Fed was concerned that card issuers would attempt to increase the APR on existing balances by wooing consumers to convert an existing card to a new one that had a short-term promotional rate of say, 2.99 APR, but with a much higher rate that would kick in after the promotion ended.  With the 226.55(d), the existing balance remains protected.  As always, please read the reg and staff commentary for additional details.

Before you hyperventilate, the restriction will not govern balance transfers from other card issuer accounts that the member transfers to your credit union.  If a member transfers a balance from say, Bank of America, to your credit union, you can charge whatever your rate is on whatever they transfer.  But if you acquire a credit card account from another credit union via a merger or acquisition, then those balances are protected via 226.55.

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NCUA issues Legal Opinion Letter 09-1018 to clarify that, in its opinion, that federal law preempts a North Carolina state law that attempts to require federal credit unions to file a notice of exemption from state licensing requirements.  The letter has SAFE Act implications.  Here's a snippet:

"While the SAFE Act contemplates separate state and federal regimes for mortgage loan originators, it provided for a national registration system and required NCUA, the other federal banking agencies, and the Farm Credit Administration to develop and maintain a system for registering mortgage loan originators employed by institutions regulated by these agencies. The federal agencies have published a proposed rule, 74 Fed. Reg. 27,386 (June 9, 2009), to establish the Nationwide Mortgage Licensing System (NMLS) for individuals engaged in the business of residential mortgage loan origination and a final rule is expected soon. Individuals, if employed at a federally regulated institution, must register on the NMLS. Individuals who are not employed at a federally regulated institution must be licensed under state law and register on the NMLS.

NCUA’s regulatory provision on preemption of state law states it does not apply to aspects of credit transactions primarily regulated by other federal law. 12 CFR §701.21 (b)(3). The SAFE Act expressly addresses the registration requirements for mortgage loan originators regulated by federal agencies. FCUs and their employees who originate mortgages will be required to register under this federal registration regime. In addition to the provisions of the FCU Act supporting preemption of the exemption notice requirement in North Carolina law, the SAFE Act addresses the sole basis identified in the state law for requiring exempt institutions to "claim and confirm" their exemption. The SAFE Act requires a national registry open to consumers and, thus, fully addresses the basis identified in the state law, namely, to facilitate the referral of consumers who contact the state commissioner. N.C. Gen. Stat. §53-244.050 (g). Therefore, we conclude federal law preempts the state provision requiring FCUs to file a notice of exemption from the state licensing requirements under the North Carolina SAFE Act. "

So, if a state SAFE Act system tries to have you file an exemption, NCUA has taken the stance that such a requirement is preempted.

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I'm going to yabba-dabba at a number of NAFCU events in the near future, if you are interested.

• The NAFCU member call-in, on February 10.  This member-only overview is very good, and very free. 
• A Reg Z and Reg E webcast, on February 17.   Members and nonmembers, and even non credit unions (such as law firms) can sign up for this event.

• NAFCU's Regulatory Compliance School, on March 22-26.   I'm the MC.  (Yes, I have lots of bad jokes planned.) And I'll talk on the Right to Financial Privacy Act, Privacy and Security of Member Info, and BSA.  This event is open to all, as long as your check clears. The early bird registration discount ends this Friday.

• NAFCU's Volunteer's Conference, on May 20-22.  I'll be speaking on general regulations for board members and supervisory committee members, and BSA for credit union officials.  And I'll likely be eating my weight in wonderful Tex-Mex food, as the educational event takes place in San Antonio along the River Walk.  Again, members and non-members are welcome.