Change Is in the Cards

June 21, 2010

Major changes to credit card regulations became effective Feb. 22, 2010. But those changes are only part of the story, albeit a major part. The Credit Card Accountability, Responsibility, and Disclosure (CARD) Act and other amendments to the Truth in Lending Act’s implementing rules—Regulation Z—require a major overhaul of credit card programs.

In its new rule, the Federal Reserve requires 45-day notice for significant changes to any open-end loan terms (effective Feb. 22 rather than the original July 1, 2010, effective date).

Key provisions that recently went into effect include requirements to:

  • Determine when it’s permissible to raise the annual percentage rate (APR) on existing balances. The law only permits this for variable-rate cards, for cards with a promotional rate, for failure to comply with a workout plan, or for failure to make the minimum payment within 60 days;
  • Prohibit any floor on variable-rate credit cards that doesn’t permit the rate to decrease consistent with reductions in the index. This was an unexpected addition when the Fed issued its final rules six weeks before the Feb. 22 effective date;
  • Implement data processing changes to properly apply payments exceeding the required minimum to balances with the highest APRs;
  • Reformat the periodic statement to ensure proper disclosure of the payment due date, amount of any late-payment fee, and the date the late payment fee may be imposed;
  • Ensure that the payment due date falls on the same numerical date every month, eliminating due dates on the 29th, 30th, and 31st;
  • Obtain the accountholder’s explicit consent (opt-in) before imposing over-limit fees;
  •  Include on periodic statements a “minimum payment warning,” with a chart explaining the time it would take to pay off the current balance by making only minimum payments, the total cost (including principal and interest) in making those payments, the monthly payment required to pay off the current balance in 36 months, and the total cost including principal and interest;
  • Provide on the periodic statement a toll-free number for independent financial counseling services;
  • Prohibit credit cards from being provided to anyone under age 21 who lacks sufficient income to make required payments or a co-signer or guarantor over age 21; and
  • Post on credit unions’ Web sites and the Fed’s Web site copies of current credit card agreements. Credit unions without a Web site may provide a telephone number on the periodic statement the cardholder can use to request a copy of the agreement.

Reg Z changes
The following Reg Z changes are effective July 1, 2010, as part of open-end rules the Fed issued in January 2009:

  • Revise the “Schumer” disclosure box for credit card applications;
  •  Revise credit card account-opening disclosures to include a summary table of key terms;
  • Provide a change-in-terms summary at the front of the periodic statement or on the front of any separate mailing for significant changes to any open-end loan; and
  • Reformat how transactions appear on the periodic statement and include interest and fee totals for the current month and year-to-date for all open-end loans.

Final CARD Act provisions go into effect Aug. 22, 2010. The Fed already issued a proposal on gift cards. But it has yet to implement the requirement that card issuers review—at least every six months—accounts where they have increased the APR since Jan. 1, 2009, due to market conditions or the cardholder’s credit risk, and determine whether they should reduce the APR.

The Fed has yet to propose a rule to implement the provision that any penalty imposed in a card agreement (i.e., late or over-limit fee) must be “reasonable and proportional.”
The Fed must consider the actual costs the issuer incurs and the fees’ deterrence factor. It can include in its regulations a fee amount that can be “presumed” to be reasonable.

As you see, there’s more to come!

MICHAEL McLAIN is assistant general counsel for the Credit Union National Association. Contact him at 608-231-4185 or at