Compliance Blog

Posted by Anthony Demangone

I hope everyone had a nice weekend.  Now, back to the Credit CARD Act daily grind.

Section 104 of the Credit CARD Act does a number of things.

5 p.m. Cutoff.  Section 104 amends Section 164 of the Truth in Lending Act to mandate that if a member makes a payment by 5 p.m. on their due date, you'd need to credit the payment as of that date.  To clarify: There's no requirement to post payments on the day they are received, but payments received by 5 p.m. on the due date must be credited on the due date.  Here's what Section 164 will look like after February 22, 2010:

 164. Prompt and fair crediting of payments.(a) IN GENERAL - Payments received from an obligor under an open end consumer credit plan by the creditor shall be posted promptly to the obligor's account as specified in regulations of the Board. Such regulations shall prevent a finance charge from being imposed on any obligor if the creditor has received the obligor's payment in readily identifiable form by 5:00 p.m. on the date on which such payment is due in the amount, manner, and location indicated by the creditor to avoid the imposition thereof.

This section seem to simply create a 5 p.m. cut-off, although arguably only for the due date. What if you close before 5?  Perhaps the Federal Reserve will clarify expectations when they issue regulations to implement the Act. 

Payment allocation.  Section 104 of the Credit CARD Act also requires that credit unions allocate any payment above the minimum periodic payment to the balance with the highest APR. Note: This is a stronger requirement than UDAP will require on July 1, 2010.  (UDAP would have given the credit union the option of pro rata application of payments.) To illustrate: if a member has a minimum payment of $50 and makes a $300 payment – the $250, in excess of the minimum, must be applied to the balance on the card with the highest APR. There are also other restrictions for certain deferred interest arrangements.

So, scrap what UDAP required.  Make sure your system (and the folks that program it) is ready for this requirement.  If they were shooting for July 1, 2010, using UDAP's requirements as a framework, they'll be late and off the mark. 

Changes to mailing address.  Additionally, if the credit union changes its mailing address or method of handling a member’s payments, it may not charge a late fee for 60 days – if the mailing address change causes a material delay in the crediting of a member’s payment. If a credit union provides two options for payments (such as an old mailing address and a new mailing address) during a transition period, the change would most likely not cause a material delay. The section is intended to prevent card issuers from switching their method of accepting payments to force consumer payments into being late (and, thereby, collecting the fee income).

These provisions go into effect on February 22, 2010.

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NCUA has release NCUA Letter to Credit Union 09-CU-12 to share interagency exam procedures on credit issued to military personnel and their dependents.  You can access it here.  The letter has a number of attachments, which should give you valuable information about the DoD rule, as well as the SCRA.