August 4, 2008
Jennifer J. Johnson
Secretary
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, NW
Washington, DC 20551
Re: Docket No. R-1314
Dear Ms. Johnson:
The Conference of State Bank Supervisors (CSBS) appreciates the opportunity to comment
in response to the proposal to prohibit unfair or deceptive acts or practices in connection
with consumer credit cards accounts and overdraft services for deposit accounts.
The widespread acceptance of credit and debit cards has been a boon to consumers, small
businesses and merchants, and the financial institutions that issue them. CSBS opposes
any initiatives that reduce the availability of reasonably priced credit and convenient
payment systems to qualified, responsible borrowers. We are concerned, however, about
the potential for abuse and misunderstanding as competition among banks on interest rate
margins leads to ever more aggressive pursuit of fee income. Credit cards have become a
major source of fee income for the banks that issue them. Abusive practices must be
halted when identified, and credit card users must receive clear, concise, comprehensible,
and timely information about fees.
CSBS has vigorously resisted efforts to preempt state enforcement and protection of
consumers and believes the public is best served by a system that provides for dual federal
and state regulation. Given an industry that is dominated by national bank credit card
issuers and subject to the realities of federal preemption, state regulation of credit card
practices is presently not a viable option. State regulation would apply only to a minority
of consumers and would have the unfortunate and unintended consequence of putting
state-chartered entities at a competitive disadvantage.
Therefore, we commend the Board of Governors of the Federal Reserve System (Board),
the Office of Thrift Supervision (OTS), and the National Credit Union Administration
(NCUA) for exercising their authority under the Federal Trade Commission (FTC) Act to
prohibit unfair or deceptive acts or practices, thereby creating a nationwide standard
applicable to all institutions to protect all the citizens of our states.
In general, we believe the proposed rule offers sufficient consumer protection without
limiting the availability of credit to appropriate borrowers. In addition, CSBS has specific
comments on several of the Agencies’ proposed provisions.
CONFERENCE OF STATE BANK SUPERVISORS
1155 Connecticut Ave., NW, 5th Floor • Washington DC 20036-4306 • (202) 296-2840 • Fax: (202) 296-1928
Credit Practices Subpart
State Exemptions
The Federal Trade Commission’s Credit Practices Rule included a provision allowing
states to seek exemptions from the rule if state law affords a greater or substantially similar
level of protection. The Agencies are not proposing to extend this provision to the
proposed rules for consumer credit card accounts and overdraft services. CSBS is
committed to protecting consumers from predatory practices. Therefore, if state law
affords more protection to consumers than the proposal, CSBS supports preserving the
state exemption.
Consumer Credit Card Practices Subpart
Time to Make Payment
CSBS supports the proposal to provide a safe harbor for institutions that have adopted
reasonable procedures designed to ensure periodic statements specifying the payment due
date are mailed or delivered to consumers at least 21 days before the payment due date.
We believe this provides the consumer adequate time to review their statement and make
payment. In addition, we do not believe the provision will negatively impact the
availability of credit.
Allocation of Payments
CSBS agrees with the Agencies that disclosures alone will not sufficiently protect
consumers. Therefore, we commend the Agencies for proposing to prohibit specific unfair
or deceptive acts or practices under the FTC Act.
The proposal would require an institution to allocate any amount paid by a consumer in
excess of the required minimum periodic payment among the balances in a manner no less
beneficial to consumers than one of three listed and approved methods. While CSBS
appreciates the attempt to provide an institution with a significant amount of flexibility in
its payment allocation methods, we suggest the Agencies should require institutions to
utilize one of the three methods referenced in the proposal. Further, institutions should
disclose the allocation method they utilize.
Application of Increased Rates to Outstanding Balances
The proposal would prohibit institutions from increasing the annual percentage rate
applicable to any outstanding balance on a consumer credit card account, except in certain
limited circumstances. Under the proposal, the balance to which an institution could not
apply an increased rate is the balance 14 days after the institution has provided a 45-day
notice of rate increase. CSBS supports the proposal and believes 14 days is an appropriate
amount of time to enable consumers to receive and review notice of a rate increase.
Fees for Exceeding the Credit Limit Caused by Credit Holds
CSBS strongly supports the proposal to prohibit institutions from assessing an over-the-
credit-limit (OCL) fee if the limit was exceeded due solely to a hold. Often, consumers are
unaware of the amount of the hold placed on their account or the period of time the hold
remains on their account. Therefore, it is impossible for a consumer to know exactly how
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much credit remains available. If a consumer goes over their credit limit with a purchase, a
fee should rightfully be assessed. Assessing an OCL fee based solely on a hold, however,
is unacceptable as it is not the result of consumer negligence.
Security Deposits and Fees for the Issuance or Availability of Credit
The Agencies propose to prohibit institutions from charging to a consumer credit card
account security deposits and fees for the issuance or availability of credit during the
twelve months after the account is opened that constitute the majority of the credit limit for
the account. In addition, the proposal would prohibit institutions from charging to the
account during the first billing cycle deposits and fees that total more than 25 percent of
the credit limit. Finally, if the deposits and fees for the issuance or availability of credit
total more than 25 percent but less than the majority of the credit limit during the first year,
the institution would be required to spread the amount equally over the eleven billing
cycles following the first cycle.
Overall, CSBS believes this is a reasonable approach. We are concerned, however, that
institutions should be required to disclose security deposits and fees in advertising
materials where the available credit limit is prominently promoted. Also, limiting the fees
for the first twelve months would not sufficiently protect consumers. That is, consumers
may be suddenly saddled with large fees immediately after the expiration of the year.
Further, we do believe the Agencies should be sure this proposal will not have the impact
of limiting access to credit for some borrowers, particularly those that utilize subprime
credit products. While CSBS believes it is vitally important to protect consumers from
excessive fees and deposits, we recognize credit cards should remain available to qualified
borrowers in the subprime market segment.
Firm Offers of Credit
Under the proposal, if an institution offers a range of multiple annual percentage rates or
credit limits when making a solicitation for a firm offer of credit, and the annual
percentage rate or credit limit that consumers approved for credit will receive depends on
specific criteria based on creditworthiness, the institution must disclose the types of criteria
in the solicitation. An institution may use the following disclosure to meet these
requirements: “If you are approved for credit, your annual percentage rate and credit limit
will depend on your credit history, income, and debts.” CSBS believes the proposal
regarding firm offers of credit is insufficient to adequately protect consumers. The
proposed disclosure is vague and will not fully convey to consumers that their annual
percentage rate or credit limit will depend upon their creditworthiness. Often, a
solicitation will advertise a consumer may be eligible for a very low annual percentage rate
or a very high credit limit. The consumer, believing they may receive these favorable
terms, may apply and be approved, but at a higher annual percentage rate or a lower credit
limit. At this point, CSBS believes the consumer should have the opportunity to decline
the credit card if the annual percentage rate and/or the credit limit are not acceptable.
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Overdraft Services Subpart
Overdraft Services
The Agencies are proposing to create a new substantive right for consumers to opt out of
an institution’s overdraft service to ensure they have a meaningful opportunity to decline
the service. As CSBS previously commented in response to the Board’s proposed
revisions to Regulation DD 1 , we are overwhelmingly supportive of this proposal.
Further, the Agencies are concerned consumers unfamiliar with debit hold practices may
inadvertently incur considerable overdraft fees on the assumption the available funds in
their account will only be reduced by the actual purchase amount of the transaction. Just
as with OCL fees assessed as a result of holds, CSBS strongly supports the proposal to
prohibit assessing overdraft fees as a result of a hold. As stated above, consumers may be
unaware of the amount of the hold placed on their account or the period of time the hold
remains on their account. If a consumer overdraws their account with a purchase, a fee
should be assessed. Assessing an overdraft fee based solely on a hold, however, is not the
result of consumer negligence and is therefore unacceptable.
Finally, the Agencies are also concerned about the impact of transaction clearing practices
on the amount of overdraft fees that may be incurred by the customer. The February 2005
Interagency Guidance on Overdraft Protection Programs lists as a best practice explaining
the impact of transaction clearing policies to consumers, including that transactions may
not be processed in the order they occurred, and that the order transactions are received by
the institution and processed can affect the total amount of overdraft fees incurred by the
customer. CSBS is aware that third parties may pressure banks to pay the largest
transaction first. And while CSBS recommends banks process transactions in the order
they are received, we do not believe it is necessary for the Agencies to require a particular
method of transaction clearing. At a minimum, however, the Agencies should require
institutions to disclose to consumers the transaction clearing practice they utilize.
Again, thank you for the opportunity to comment.
Best regards,
Neil Milner
President & CEO
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The CSBS comment letter submitted in response to proposed revisions to the Federal Reserve’s Regulation
DD can be viewed here:
http://www.csbs.org/Content/NavigationMenu/RegulatoryAffairs/CommentLetters/CSBSRegDDCommentFI
NAL.pdf.
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