On December 18, 2008, the Office of Thrift Supervision, the National Credit Union Administration and the Federal Reserve Board jointly issued final changes to their respective rules governing unfair acts or practices (UAP) relating to consumer credit card accounts,1 and the Federal Reserve Board issued proposed and final rules with respect to overdraft payment fees and required disclosures for credit card accounts. The changes, in large part, were proposed in June 2007 and May 2008.
Credit Card Practices
The changes relating to UAP in connection with credit card accounts apply to banks and their subsidiaries, savings associations and their subsidiaries, and federal credit unions.2 The new rules, which are effective July 10, 2010, apply only to open-end consumer credit card accounts that are accessed by a physical card. Under the new UAP rules, a credit card issuer:
- Must provide the consumer “reasonable time” to make payment before charging a late fee, with issuers who mail statements at least 21 days prior to the due date falling under a “safe harbor”;
- Must apply any voluntary payments (in excess of the minimum payment) to all balances on a pro rata basis or to the balances with the highest interest rates first;
- Must apply rate increases only to new balances, except in instances where possible rate increases were disclosed at the opening of an account, variable interest rates apply, notice is provided for increases for a category of transactions, a minimum payment is not received within 30 days of its due date, or a consumer fails to comply with the terms of a workout arrangement;
- May not use the “two-cycle” or “double-cycle” method3 of calculating finance charges; and
- May not charge fees in the first billing cycle that exceed 25% of the initial credit commitment or during the first year of the account that exceed 50% of the credit commitment.
The Federal Reserve Board also issued final rules, effective July 1, 2010, changing Regulation Z disclosure rules with respect to credit card accounts to require issuers to provide the following new disclosures and notices:
- Duration of penalty rates, returned payment fees, required credit insurance, debt suspension or debt cancellation coverage fees, foreign transaction fees, and an example of the amount of available credit left after payment of fees comprising more than 15% of the minimum credit commitment;
- Account opening disclosures including notice of right to reject the plan when fees have been imposed, but the consumer has not yet used the plan;
- With respect to checks that access credit card accounts, any promotional rate and when it will expire, the type of rate (purchase or cash advance) that will apply after expiration of the promotional period and the applicable APR, any transaction fees, grace period terms and the date by which the check must be used in order to access the promotional rate;
- With respect to monthly statements, total monthly and year-to-date interest charges (identified by type), the amount of late payment fees and the resulting penalty APR, a warning regarding the effect of making only minimum payments (including a hypothetical repayment example assuming minimum payments); and
- 45-day notice of changes to terms that must be disclosed (increased from 15 days), including rate increases due to payment delinquency or default disclosed at account-opening.
In May 2008, the bank agencies proposed multiple rules on bank overdraft protection charges. None of the rules were adopted. Instead, the Board adopted a single final rule, effective January 1, 2010. The new rule amends Regulation DD (Truth in Savings) to require all depository institutions to:
- Disclose separately in periodic statements the total amounts charged for overdraft and NSF fees, both for the statement period and on a year-to-date basis; and
- Program automated systems to disclose only available deposit balances, and not overdraft credit availability, in response to consumer balance inquiries.
On December 18, the Board reissued an earlier proposed rule with respect to overdraft practices and particular debit hold situations that may develop in the merchant collection process. The proposed rule prohibits financial institutions using electronic funds transfer systems from imposing overdraft fees on ATM and one-time debit card transactions without providing initial and recurring notice of the consumer’s right to participate in opt-in or opt-out procedures established by the institution.