The Board of Governors of the Federal Reserve System (the "Board") has issued a final rule implementing certain provisions of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (the "CARD Act"). The final rule amends various sections of Regulation Z ("Reg Z") and provides staff commentary on the amendments. Although the final rule becomes effective February 22, 2010, please read further regarding the different mandatory compliance dates for certain sections of the final rule. The 1155-page final rule may be accessed by clicking on the following link: http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20100112a1.pdf.
As we have discussed in previous Alerts (which may be accessed by clicking on this link or by going to the site provided at the end of this Alert), provisions of the CARD Act become effective in stages. Some provisions of the Act became effective August 20, 2009; others become effective February 22, 2010 and the remaining become effective August 22, 2010. The Board has indicated that it will issue its rules implementing the CARD Act in stages as well. The first stage was an interim final rule issued on July 22, 2009 which implemented provisions of the CARD Act effective on August 20, 2009. Among other things, the "second stage" final rules issued January 12, 2010 also finalize the "first stage" July 22, 2009 interim rules.
In addition, in January 2009 and prior to the passage of the CARD Act, the Board previously adopted two final rules pertaining to open-end credit. Since several of the provisions of the subsequently passed CARD Act are similar to the provisions of the January 2009 rules, the Board has withdrawn the January 2009 rules and has incorporated many provisions of the January 2009 rules into these final rules.
The following is a summary of major revisions to Reg. Z affected by the final rule. Among other things, the final rule will:
- Implement the CARD Act's prohibitions on increasing an annual percentage rate during the first year after an account is opened;
- Require credit card issuers to consider a consumer's ability to pay before opening a new credit card account or increasing the credit limit for an existing cardholder;
- Prohibit an issuer from issuing a credit card to a consumer under 21 unless the consumer has submitted a written application which contains either (i) information indicating the underage consumer has the ability to make required payments on the account or (ii) the signature of a cosigner by someone over age 21 who has the means to repay the underaged consumer's debts;
- Limit an issuer's ability to offer a student at an institution of higher education any tangible item to induce the student to apply for a credit card;
- Require credit card issuers to obtain a consumer's express consent before imposing any fees for transactions which exceed his or her credit limit;
- Prohibit an issuer from imposing more than one over-the-limit fee per billing cycle;
- Provide that payments in excess of the minimum be allocated to the balance with the highest rate;
- Require on-line disclosure of an issuer's credit card agreements on the issuer's web sites and to submit the agreements to the Board for posting on the Board's web site;
- Limit the total fees charged during the first year after account opening to 25% of the initial credit limit;
- Prohibit "double cycle" billing and charging fees for making a payment on the account, except for payments involving an expedited service; and
- Require the following disclosures on the periodic statement: (i) the amount of time and the total cost involved in paying the balance in full making only minimum payments; and (ii) the monthly payment amount required to pay off the balance in 36 months and the total cost of repaying the balance in 36 months.
The final rule also has different mandatory compliance dates. Compliance with the following provisions of Reg. Z as amended by the final rule is mandatory by February 22, 2010:
- Section 226.5(a)(2)(iii) regarding the term "fixed"
- Section 226.5(b)(2)
- Section 226.7(b)(11), (b)(12) and (b)(13)
- Section 226.9(c)(2) except for (iv)(D)
- Section 226.9(e)
- Section 226.9(h)
- Section 226.10
- Section 226.11(c)
- Section 226.16(f)
- Sections 226.51-226.58
All remaining sections of the final rule must be complied with by July 1, 2010.
Finally, it should be noted that while several provisions of the CARD Act apply to all open-end credit, other sections of the CARD Act apply only to certain types of open-end credit, such as credit card accounts under open-end consumer plans. The table below summarizes the applicability of each of the major revisions to Reg. Z.
Click here to view table.