Compliance Blog

First off, can you tell Congress did not like this practice?  "Fee harvester" is not a term used to describe a consumer-friendly product.  Few credit unions dabble in these types of products, so take a quick look at your credit cards to see if they would be covered.

Section 105 adds subsection (n) to Section 127 of TILA.  This section requires that if a new credit card account adds fees that equate to more than 25% of the available credit limit - those fees must be paid for in another payment form (i.e. can not be added to the credit card at issuance).  This section stems from practices by some subprime card issuers who would open a credit card account with a credit limit of $300 that already had $250 in fees on the card - giving the consumer on $50 in available credit and accruing interest on the $250 in fees.  Thus, the term "fee harvester."  

This section is a bit confusing and it seems the Fed would issue regulations to clarify and prevent evasion of this subsection.  For FCUs, do not forget about Section 706.26 of NCUA's regulations covering Unfair or Deceptive Acts or Practices (UDAP) - effective July 1, 2010.  The restrictions are more stringent and detailed.  If you offer a credit card like this for some reason, be sure to check out UDAP (see especially page 129 as well as pages 142-145 of the official staff commentary).

This section strengthens the penalties section of TILA by authorizing fines of twice the amount of any finance charge, with a minimum fine of $500 and a maximum of $5,000, in penalties for individual actions on an open end consumer credit plan.  The section also allows higher penalties if a "pattern or practice" of failures can be established.  

This section adds the term "open end consumer credit plan" to the existing definition of "open end credit plan" under Section 103(i) of TILA.  The definition remains substantially the same, but the amendment clarifies that the terms "open end consumer credit plan" and "open end credit plan" are interchangeable.