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									      New Credit Card Act
     CUNA Attorneys Conference
        November 18, 2009

              Jeffrey Bloch
   Senior Assistant General Counsel
Credit Union National Association (CUNA)
         Backgound/Context
• Reg Z Review – 2004 – 2010?
  – Final Open-end Reg Z Changes issued in
    January 2009; Effective 7/1/10
  – Closed-End Proposal issued in July 2009
• UDAP Rules – Issued by NCUA, Fed, &
  others in January 2009
  – Restricts/Prohibits credit card practices, as
    opposed to changing disclosures per Reg Z
  – Also effective 7/1/10 (for now)
      Background/Context
• Then Congress gets involved and passes
  CARD Act
• Long-time coming, accelerated by
  Democratic control and new Obama
  Administration
• Signed by President 5/22/09
         Background/Context
• Much of the Card Act expands on UDAP
  provisions and sweeps them under TILA and
  codifies a number of revisions in new Reg Z rule
• New and existing Reg Z rules apply to the extent
  not covered by or not inconsistent with Card
  ACT
• Same with UDAP rules for now, but questionable
  whether they survive
• Card Act provisions effective 8/20/09, 2/22/10 or
  8/22/10, depending on provision
   Provisions Effective 8/20/09
• Infamous “21-Day” Requirement – must send
  periodic statements at least 21 days before
  the due date in order to consider it late
• BIG Problem
  – Applies to all open-end, not just credit cards like
    almost all other provisions of CARD Act
  – Uniquely impacts CUs due to consolidated
    statements and multi-featured, open-end products
    like LoanLiner
    Provisions Effective 8/20/09
       21-Day Requirement
• Compounded because CUNA and others
  did not have opportunity to review before
  passage
• CUNA in constant contact with Fed, NCUA
  and Capitol Hill to either limit scope to
  credit cards or extend effective date
   Provisions Effective 8/20/09
      21-Day Requirement
• Options to Comply
  – Changing all due dates to one date 21 days after
    statements are delivered (Bi-weekly/weekly
    payments would be consider voluntary)
  – Print current and following month’s due dates on
    the statement
  – Retain existing due dates and send out
    additional, separate periodic statements
    Provisions Effective 8/20/09
       21-Day Requirement
• Fed provided some short-term flexibility
• Credit unions do not have to be in
  compliance if they have statement with
  periodic statement indicating member has
  21 days to pay regardless of the stated
  due date
• This is permitted for “short” period of time.
  We hope it means as long as it takes,
  assuming good faith effort to comply
     Provisions Effective 8/20/09
        21-Day Requirement
• Rules issued in July ’09
• Effective 8/20 but with comment period
  ending 9/21
• CUNA sent multiple letters and
  encouraged the same from credit unions.
  NCUA instructs examiners to be lenient.
• Rules also address 45-day change-in-
  terms provisions (to be discussed in a bit)
     Provisions Effective 8/20/09
        21-Day Requirement
Issues covered under Rules
• If you have reasonable procedures for delivery
  in a certain number of days after billing cycle,
  you can add those days to 21 day requirement
• Can’t consider late means no fee, APR increase
  or reporting to credit bureaus – Collections ??
• Can’t use “courtesy” period
• Applies even for electronic statements and
  payments, unlike Reg Z
  Provisions Effective 8/20/09
45-Day Change-in-Terms Notice

• Creditor must give 45 days notice before
  increasing APR or other “significant” terms
  in credit agreement
• Notice must contain brief statement of
  borrower’s right to cancel
• Only applies to credit cards
    Provisions Effective 8/20/09
  45-Day Change-in-Terms Notice
• Exceptions:
  – Expiration of disclosed period at time
  – Variable rate per publicly available index
  – Rate increase in connection w/ work-out
    arrangements
• If canceled, payments must be:
  – Amount that amortize balance over 5 years or more,
    or
  – Percentage no more than twice the percentage that
    applied before
  Provisions Effective 8/20/09
45-Day Change-in-Terms Notice

 • Rules issued 7/09, effective 8/20
 • Defines significant terms
   – Various fee, APRs, charges-specific list
   – Grace periods
   – Balance computation methods
   – Minimum Payment Amount
  Provisions Effective 8/20/09
45-Day Change-in-Terms Notice

• Rules specify content of notice
  – Description of change
  – Date change is effective
  – The right to reject the change
  – How to reject, must include toll-free number
    (issue for CUs)
  – Account will be terminated/suspended if
    change is rejected
  Provisions Effective 8/20/09
45-Day Change-in-Terms Notice

• 45-day notice also required when rate is
  increased due to delinquency, default, or
  penalty
• Similar notice must be provided to
  describe the increased rate and when it
  will no longer apply
 Provisions Effective 2/22/10
Minimum payment warnings
• Although CARD Act applies this to all
  open-end credit, Fed proposal issued in
  Sept. limits this to credit cards, as was the
  case with the earlier Reg Z rules.
• In general, must include statement that
  making minimum payments increases
  interest and time to repay
   Provisions Effective 2/22/10

Minimum Payment Warning
• Must disclose number of months it takes to pay if
  only minimum payments are made, along with
  amount of interest
• Must also disclose monthly payment to pay-off
  balance in 36 months, along with amount of
  interest
• Toll-free number for credit counseling services
• Must be on periodic statement in a table
 Provisions Effective 2/22/10
• APR may not be increased in first year
  unless (similar to exceptions to 45-day
  change-in-terms requirement:)
  – Variable rate based on public index
  – After period specifically disclosed at account
    opening
  – Consumer fails to abide by workout
    agreement
  – Payments are 60 days late
 Provisions Effective 2/22/10
• APR on existing balance may not be increased
  unless:
  – Raised after specific time period if time period is
    disclosed previously, along with APR that will then
    apply
  – Variable rate based on pubic index
  – Failure to comply with workout arrangement
  – Payment 60 days late
• Existing balance may either be amortized over 5
  years or minimum payment no more than twice
  the percentage as before (again, similar to 45-
  day change-in-terms provisions)
 Provisions Effective 2/22/10
• Payment above minimum must be applied
  to highest APR first, then to the next
  highest, etc.
• No late payment fee or finance charge for
  late payment if creditor changes payment
  address or procedures that causes a delay
  within 60 days of the change
• No double-cycle billing – Doesn’t really
  affect CUs
 Provisions Effective 2/22/10
• No over-the-limit fee unless member opt-in
  – May only be charged once per billing cycle
  – Notice to revoke opt-in must be given in
    periodic statement in each period in which fee
    is charged
  – AmEx and Discover are dropping fees –
    consumer friendly and too much trouble
 Provisions Effective 2/22/10
• No separate fee for specific payment
  methods unless it’s for expedited service
• Payment due dates must be same day
  each month and may not treat as late if
  received the next business day after a due
  date that is weekend or holiday
• Cut-off time on due date may be no earlier
  than 5 p.m.
 Provisions Effective 2/22/10
• Cannot open credit card account or
  increase credit limit unless you consider
  applicants ability to make required
  payments
• Creditors will be required to post credit
  card agreements on their websites and
  give copies to Fed
 Provisions Effective 2/22/10

• If less than 21 years old, need parent/legal
  guardian/spouse to be jointly liable, unless
  applicant has independent means to repay
• No prescreened offers to anyone less than
  21 unless he/she consents to offers
 Provisions Effective 2/22/10
• Card issuers may not provide inducement
  for college student (no age limit) to apply if
  made on/near campus or at college-
  sponsored event
• Must provide marketing/college affinity
  agreement info on annual basis to Fed,
  including payments from colleges and
  number of cards active and opened per
  year
 Provisions Effective 8/22/10
• In general, no inactivity fees for gift
  certificates, store gift cards or general use
  prepaid cards
• Fee may be charged after 12 months of
  inactivity if prior notice is given
• Expiration date must be disclosed and
  must be at least 5 years after issuance
 Provisions Effective 8/22/10
• When APR is increased, these accounts
  must be reviewed at least every 6 months
  to determine if decrease is appropriate
• Not effective until 8/22/10 but applies to
  rates increased since 1/1/09
• Penalties must be “reasonable and
  proportional to violation”
           Final Thoughts
• Rules on providing periodic statements 21
  days before due date and implementing
  45-day change-in-term notices will be
  finalized towards end of the year
• Proposed rules implementing provisions
  effective 2/22/10 have been issued and
  will be finalized at same time
• Rules implementing provisions effective
  8/22/10 will be issued later
QUESTIONS??

    Jeffrey Bloch
 jbloch@cuna.coop
800-356-9655 x 6732
                                                         October 14, 2009


Fed Requests Comments on Second Set
of Regulation Z Rules Implementing the
         New Credit Card Law
Executive Summary
•   The Federal Reserve Board (Fed) has recently published a second set of
    proposed rules that implement certain provisions of the Credit Card
    Accountability, Responsibility and Disclosure Act of 2009 (CARD Act). The
    CARD Act was enacted earlier this year, which prohibits and restricts a
    number of credit card practices.
•   This new proposal implements the provisions of the CARD Act that will
    become effective on February 22, 2010. These include provisions that
    require minimum payment warnings on credit card statements, prohibit the
    increase of interest rates during the first year the account is opened, require
    co-signers for consumers who are under the age of 21 in order to open an
    account, and require that payments above the minimum amount be applied to
    balances with the highest interest rate, in addition to a number of other
    requirements.
•   This proposal follows an earlier interim final rule that implements the CARD
    Act provisions that were effective as of August 20, 2009. This includes the
    requirement to send periodic statements at least 21 days before the payment
    is due, which as of now applies to all open-end credit in addition to credit
    cards, and the requirement to provide a 45-day notice when the rate and
    certain terms of a credit card account are changed.
•   It is expected that both the interim final rule and these new proposed rules will
    be finalized together before the end of the year.
•   Most of the CARD Act provisions apply only to credit cards. However, earlier
    this year, the Fed issued comprehensive rules that amend the Regulation Z
    open-end credit rules, which encompass credit card, as well as other open-
    end plans, and a number of those are also addressed in the CARD Act. In
    general, for these provisions, the Fed is not limiting their scope to credit cards
    if the earlier Regulation Z rules apply them to all open-end accounts, although
    there are exceptions to this general approach.
•   In general, the provisions that apply only to credit cards will not apply to
    charge cards, home equity lines of credit (HELOCs) even if they are accessed
    by a credit card, and will not apply to debit cards that access overdraft lines of
    credit.
•   The provisions of the earlier Regulation Z rules that are not addressed in the
    CARD Act will remain in effect. However, the Fed is considering changing
    the effective date of at least some of those provisions from July 1, 2010
    to February 22, 2010 to ensure consistency. The provisions of these rules
    that are inconsistent with the CARD Act provisions will be amended or
    withdrawn to ensure consistency. The applicable provisions of the unfair and
    deceptive acts and practices (UDAP) rules that were issued earlier this year
    will also be changed or withdrawn, as necessary, so they conform to the
    CARD Act requirements.
•   Comments on the proposed rules are due thirty days after publication in
    the Federal Register and are due to CUNA by November 2, 2009. If
    commenting directly to the Fed, you must refer to Docket No. R-1370.

Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to
Senior Vice President and Deputy General Counsel Mary Dunn at
mdunn@cuna.com, Senior Assistant General Counsel Jeff Bloch at
jbloch@cuna.com, or Regulatory Counsel Luke Martone at lmartone@cuna.com;
or mail them to Mary, Jeff, and Luke in c/o CUNA’s Regulatory Advocacy
Department, 601 Pennsylvania Avenue, NW, South Building, 6th Floor,
Washington, DC 20004. You may also contact us if you would like a copy of the
proposed rules or you may access them on the Internet at the following address:
http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20090929a1.pdf

BACKGROUND
In January 2009, the Fed issued a final rule that included comprehensive
changes to the open-end credit rules under Regulation Z, as well as the official
staff commentary, which primarily affect credit cards and other revolving credit
plans. These include comprehensive changes to the format, timing, and content
requirements for the credit card application and solicitation disclosures, account-
opening disclosures, periodic statements, change-in-term notices, and
advertising provisions. Click below for more information:
http://www.cuna.org/reg_advocacy/member/download/finalanalysis_fed_020909.
pdf

At the same time, the National Credit Union Administration, the Fed, and the
other federal financial institution regulators issued a final rule under the UDAP
Act that prohibits or restricts a number of credit card practices. Click below for
more information:
http://www.cuna.org/reg_advocacy/member/analysis/ncua_022309.html



                                          2
In May 2009, the CARD Act was enacted that amended TILA to include many of
the acts or practices that were included in the UDAP rules issued in January
2009, which also included provisions of the Regulation Z rules that were issued
at that time. However, there are a number of differences, such as expanding the
requirement for sending periodic statements 21 days in advance to all open-end
consumer credit, while the UDAP rule limited this provision to credit cards. The
CARD Act also includes provisions that were not included in the rules issued in
January 2009.

The Fed has now issued the second in a series of rules to implement the CARD
Act. These proposed rules implement the provisions that will be effective on
February 22, 2010. The Fed had earlier issued an interim final rule to implement
the provisions that became effective on August 20, 2009 and will later issue rules
to implement the provisions that will be effective on August 22, 2010. These
rules will also not affect provisions of the Regulation Z and UDAP rules issued in
January 2009 to the extent they are not addressed in the CARD Act. Click below
for more information on the interim final rule that was issued earlier:
http://www.cuna.org/reg_advocacy/reg_call/rcc_073009.html

DESCRIPTION OF THE PROPOSED RULES AND PROPOSED
CHANGES TO THE OFFICIAL STAFF COMMENTARY

I. General Disclosure Requirements

The CARD Act requires that for credit cards, the term “fixed” to describe the
annual percentage rate (APR) may only be used if the APR will not change over
the period specified in the terms of the account. The Regulation Z rules issued
earlier this year contained similar provisions and those will continue to apply to
address these CARD Act provisions and will also apply to all open-end credit, in
addition to credit cards. Under the Regulation Z rules, if no period of time is
specified, then the term “fixed” may not be used unless it will not increase while
the credit plan is open. The Regulation Z rules also apply these provisions to
other similar terms, in addition to “fixed,” but will allow creditors to decrease the
rate even if it is described in this manner.

When a card issuer substitutes or replaces an existing credit card account with
another, the proposal will provide guidance as to whether the issuer must provide
a notice of the terms of a new account or provide a 45-day change-in-terms
notice. This will be determined by whether the:
• Card issuer provides a new credit card.
• Card issuer provides a new account number.
• Account provides new features or benefits.
• Account can be used at a greater or lesser number of merchants.
• Card issuer implemented the substitution or replacement on an individualized
    basis.

                                          3
•   Account becomes a different type, such as a charge card being replaced with
    a credit card.

If most of the above factors apply, then the substitution or replacement should be
considered a new account. If not, then it can be considered a change-in-terms.

II. Periodic Statements

The CARD Act requires creditors to have reasonable procedures to ensure that
they deliver periodic statements at least 21 days before the due date. Although
these provisions were addressed in the interim final rule that was issued earlier,
this proposal clarifies that notwithstanding the due date on the periodic
statement, credit unions may charge late fees and otherwise consider the
payment as late 21 days after the statement is delivered. For example, if a
credit union were to have a due date 19 days after the statement is delivered, it
may go ahead and charge a late fee after the 21-day period elapses. However,
the credit union would still be subject to penalties and litigation as a result of not
complying with the provision to have reasonable procedures for delivering these
statements at least 21 days before the due date. Also, notwithstanding these
provisions, creditors may continue to impose finance charges for accounts
without a grace period, regardless of whether they comply with these
requirements.

Under the CARD Act, a card issuer who charges a late fee must clearly disclose
on the periodic statement the payment due date, or the earliest date in which a
late payment fee may be charged if it differs from the due date, along with the
amount of the late payment fee. The creditor must also disclose if a penalty APR
will be imposed and what that rate will be.

The Regulation Z rules issued earlier this year contained similar provisions and
those will continue to apply to address these CARD Act provisions, although this
proposal contains the following revisions:
• These Regulation Z provisions will now only apply to credit cards, not to all
   open-end credit as originally required under the earlier Regulation Z rules.
   This also means these provisions will not apply to HELOCs, even if they are
   accessed by credit cards, and will not apply to overdraft lines of credit that are
   accessed with debit cards. Although charge cards are excluded, these
   accounts must still disclose the due date, and that date must be the same
   each month, as described below for credit cards.
• This due date disclosure requirement will apply, even if a late payment fee or
   penalty APR is not imposed.
• The due date disclosed must be the date indicated in the terms of the legal
   obligation and not a different date, such as situations in which another law
   prohibits a late fee from being imposed until a certain number of days after
   the due date.


                                           4
As mentioned above, the CARD Act requires that payment due dates for credit
cards must be the same date each month. This proposal implements these
provisions with the following clarifications:
• The same due date means the same numerical date, such as the 25th of each
   month and not the same relative date, such as the “third Tuesday of each
   month.” This will essentially mean creditors will not be able to set due dates
   that are on the 29th, 30th, or 31st, since not all months have these dates.
   Credit unions in these situations will have to change the due dates.
• Creditors may adjust due dates from time to time, such as in response to a
   consumer’s request or when a creditor acquires new accounts. However, the
   new due date must be the same numerical date each month going forward.
• Regulation Z currently allows billing cycles in excess of one month, as long as
   the cycle does not exceed a quarter of a year. This proposal does not
   change these current Regulation Z provisions, as long as the due date in
   each cycle is on the same numerical date.
• Using the same numerical date will mean that certain of these dates will at
   some point fall on weekends and holidays in which creditors do not accept
   mailed payments. Under other provisions of the CARD Act and Regulation Z,
   creditors must accept such payments on the next business day without
   treating it as late. However, in these situations, the same numerical date must
   still be disclosed on the periodic statement, as opposed to disclosing the next
   business day.

Minimum Payment Warnings

The CARD Act requires the following minimum payment warning disclosures,
which differ from those required under the Regulation Z rules issued earlier this
year:
• A warning statement that making only minimum payments will increase the
   interest paid and the time it will take to repay the balance.
• The number of months it will take to repay the balance if only minimum
   payments are made.
• The total cost to repay the balance, including interest and principal payments,
   if only minimum payments are made.
• The monthly payment required in order to repay the balance in 36 months,
   and the total of the interest and principal payments that will be incurred.
• A toll-free number in which the consumer may receive information about
   credit counseling and debt management services.

This information must be clear and concise and in the form of a table, except for
the general warning statement. The information must also be in the order as
listed above.




                                        5
Although the CARD Act applies these provisions to all open-end credit, this
proposal will limit these provisions to credit cards, similar to the
Regulation Z rules issued earlier this year.

This means HELOCs will not be included, even if they are accessed by credit
cards, and overdraft lines of credit accessed by debit cards will also not be
included.

The proposal also includes the following provisions that implement these
minimum payment warning requirements:
• The general warning statement must be as follows (in bold as shown):
   Minimum Payment Warning: If you make only the minimum payment each
   period, you will pay more in interest and it will take you longer to pay off your
   balance.
• The minimum payment is to be calculated based on the minimum payment
   formulas, the APRs, and the outstanding balance applicable to the account.
   For other terms, creditors may make assumptions.
• If the repayment period is less than two years, it must be disclosed by number
   of months. Otherwise, it must be disclosed in years, rounded to the nearest
   whole year.
• The minimum payment total cost estimates (the total of payments and interest
   when minimum payments are made) must be rounded to the nearest whole
   dollar.
• The following statements must also be included on the periodic statement:
       • The minimum payment estimate and the minimum payment total cost
           estimate are based on the outstanding balance shown on the periodic
           statement.
       • The minimum payment estimate and the minimum payment total cost
           estimate are based on the assumption that only minimum payments
           are made and no other amounts are added to the balance.
• The monthly payment and total costs to repay the balance in 36 months do
    not have to be disclosed if the minimum repayment estimate is less than
    three years. Otherwise, the estimated monthly payment and the total cost
    estimate must be rounded to the nearest whole dollar. There must also be a
    statement on the periodic statement that the card issuer estimates the
    consumer will repay the outstanding balance in three years if the consumer
    pays the estimated monthly payment for three years.
• The card issuer must disclose on the periodic statement the savings estimate
    for repaying the balance in 36 months, which will be the difference between
    the total cost estimate of repaying the balance by making minimum
    payments and the total cost estimate by making the payments required to
    pay off the balance in 36 months.




                                         6
•   If negative amortization or no amortization occurs, then the following has to
     be disclosed on the periodic statement in lieu of the above information:
        • The following warning statement (in bold as shown): Minimum
           Payment Warning: Even if you make no more charges using this
           card, if you make only the minimum payment each month we estimate
           you will never pay off the balance shown on this statement
           because your payment will be less than the interest charged each
           month.
        • The following statement: If you make more than the minimum payment
           each period, you will pay less in interest and pay off your balance
           sooner.
        • The estimated monthly payment to repay the balance in 36 months,
           although the total cost estimate would not be disclosed.
        • The fact that the consumer will repay the balance shown in three years
           if the consumer pays this estimated monthly payment for three years.
        • The toll-free telephone number for obtaining more information about
           credit counseling services.
•   The following refers to the toll-free telephone number requirement:
        • Card issuers must provide the name, street address, telephone
           number, and website address of at least three credit counseling
           services that have been approved by the United States Trustee or a
           bankruptcy administrator. These must be in the same state as the
           billing address on the account, unless the consumer requests
           otherwise.
        • Creditors may use automated systems and may use toll-free numbers
           designed to handle other types of consumer service calls, as long as
           the option to receive this information is prominently disclosed, such as
           listing this among the first menu of options. Creditors may also use
           third-party systems.
        • Even though it was mentioned in the CARD Act, disclosure of debt
           management services will not be required.
        • If requested by the consumer, the card issuer must provide this same
           information for a credit counseling entity that provides services in
           another language specified by the consumer.
        • Creditors may obtain information about credit counseling services from
           the United States Trustee’s website or from the relevant bankruptcy
           administrator and may disclose this website to the consumer.
           Creditors may also rely on the information on this website and do not
           have to provide the required information if it is not available on this
           website. However, the creditor must refer to the website at least
           annually to verify and update this information.
        • Creditors may not provide advertisements or marketing materials
           through the toll-free number, but may provide educational information.




                                         7
•   The creditor has the option to not provide the minimum payment disclosures
    in a billing cycle immediately after two cycles in which the consumer paid the
    entire balance, had a zero balance, or a credit balance. These disclosures
    also do not have to be provided for a cycle in which the minimum payment
    will pay the outstanding balance.
•   The proposal will eliminate the exemption in the Regulation Z rules for
    accounts when a fixed repayment period is specified in the account
    agreement and the required minimum payments will amortize the balance
    within this period.

The proposed rule provides model forms and samples that are to be used and
includes certain information that must be in bold type. Separate forms are
provided when the minimum repayment estimate is more than three years, less
than three years, and when there is negative or no amortization. Also, these
minimum payment disclosures, the due date, late payment fee, penalty APR,
ending balance, and minimum payment due must be grouped together on the
first page, and there are additional model forms and samples that are to be used
for these disclosures.

III. Subsequent Disclosure Requirements

The proposal amends provisions regarding the requirement to provide a 45-day
notice for certain changes in terms. Although this was addressed in the earlier
interim final rule since these CARD Act provisions were effective as of August 20,
2009, this proposal includes additional provisions consistent with the Regulation
Z rules issued earlier this year and also includes the following clarifications:
• The 45-day notice does not apply if the consumer has agreed to the change,
    in which case the notice must be given before the effective date of the
    change.
• Although Regulation Z will apply these requirements to all open-end credit,
    there are certain requirements that only apply to credit cards, such as the
    right to reject term changes, and these new Regulation Z provisions will not
    apply them to other types of open-end credit.
• For open-end credit besides credit cards, there must be a disclosure of any
    right to opt-out. This is not included for credit cards because other provisions
    of the CARD Act provide these types of protections.
• The right to reject changes will not apply to rate increases. The proposal
    includes revised model forms to reflect the consumer’s right to reject certain
    changes. These will also reflect that for credit cards, rate increases only
    apply to new balances.

Under the CARD Act, an increase in the APR is not subject to the change-in-
terms notice requirements if it is increased after a specified period of time if that
time period was previously disclosed to the consumer and if the APR that applies
afterwards is also disclosed.


                                          8
The proposal will require this disclosure to be in writing and that it be in close
proximity and equal prominence with the disclosure of the temporary rate that
applies during this time period. Also, for a brief period of time after these rules
go into effect, issuers offering a deferred interest or other promotional rate at a
point of sale may disclose a range of rates or an “up to” a certain rate, out of
recognition it will take time to make the system updates.

The CARD Act also provides an exception when rates are raised as a result of
the completion or failure to comply with a workout arrangement, as long as the
terms were previously disclosed, including the rate that will apply after the
arrangement. The proposal will require the following:
• The disclosures must be in writing and if the rate disclosed is variable, then
    this fact must also be disclosed, along with how the rate is determined.
• The notice must disclose the extent to which certain fees are reduced and
    fees that will apply if the consumer completes or fails to comply with the
    workout arrangement.
• The notice must also indicate, if applicable, that timely minimum payments
   must be made in order to remain eligible for the arrangement.

Under current Regulation Z rules, creditors that assess annual or other fees
based on inactivity or activity must provide a renewal notice before the fee is
imposed. However, a fee can be assessed before the notice is provided, as long
as the fee is reversed if the consumer receives a delayed notice and chooses to
terminate the account. The proposal implements the provisions of the CARD Act
that no longer allows these delayed notices. Renewal notices will also be
required when accounts terms are changed since the last renewal, even if
renewal fees are not imposed, if these terms were not previously disclosed. The
notice must be provided at least 30 days before the renewal date. However, this
will only apply if the term is included in the account-opening table.

The proposal implements the requirement to provide a 45-day change-in-terms
notice when the rate is increased due to delinquency, default, or as a penalty.
This will change the equivalent provisions that were included in the Regulation Z
rules issued earlier this year so they conform to the comparable CARD Act
provisions. This notice must be provided after the occurrence of the event that
gave rise to the increase.

The proposal provides the general content requirements, as well as separate
content requirements for credit cards. The model forms were issued earlier this
year in connection with the comparable Regulation Z changes will be changed
accordingly. The general notice will require the following:
• A statement that the delinquency, default, or penalty rate has been triggered
   and the date it will apply.
• The circumstances in which it will no longer apply or that it will remain in
   effect indefinitely.


                                          9
•   The balances the rate increase will apply and the balances, if applicable, in
    which the current rate will apply, unless the minimum payment is more than
    60 days late.

Separate content requirements apply for credit cards when the rate is increased
because the minimum payment is more than 60 days late. In these situations,
the notice must state the reason for the increase and that it will cease to apply if
the creditor receives the next six consecutive minimum payments before the due
date.

Under the CARD Act, the creditor has the option to amortize the existing balance
over a time period of no less than five years if the consumer rejects a significant
change. The proposal clarifies that this amortization period may not begin earlier
than the date when the creditor was notified of the rejection. The account
balance will be the balance at the end of the day when the credit availability is
terminated or suspended. If the credit availability is not terminated or
suspended, then the balance will be as of the date no earlier then the date when
the creditor was notified of the rejection. Also, if credit availability is terminated
or suspended, creditors may not charge fees that were not charged before the
change was rejected, such as a closed account fee.

IV. Payments

The CARD Act prevents a creditor from treating a payment as late if is received
before 5 PM on the due date in the amount, manner, and location as indicated by
the creditor. This is similar to changes in the Regulation Z rules issued earlier
this year. This proposal modifies those changes as follows to ensure
consistency with the CARD Act:
• This provision will apply to all payments, not just to mailed payments as was
    the case with the earlier Regulation Z rules.
• The flexibility in the earlier Regulation Z rules that may have permitted earlier
    cut-off times will no longer be available.

These payment provisions will apply to all open-end credit, which is consistent
with the earlier Regulation Z rules. Also, the 5 PM cut-off time will be in the time
zone of the location specified by the creditor for receipt of payments.

For payments made in-person at branches of financial institutions, the cut-off
time may be no earlier than the close of business of that branch, even if it closes
after 5 PM, and these must credited as of the date the payment is made. “In-
person” means a transaction conducted with an employee, such as a teller, and
would not include other situations, such as using a mail slot. Also, these
provisions for in-person payments only apply to “depository institutions,” as
defined in the Federal Deposit Insurance Act, which does not include credit
unions. It may be that this was intended to exclude retailers and the exclusion
for credit unions was inadvertent.

                                          10
The CARD Act requires creditors to not treat payments as late if the due date is
on a day when payments are not received, such as holidays and weekends, and
the payment is received on the next business day. Similar to the Regulation Z
rules issued earlier this year, the proposal will limit this to mailed payments,
which means this flexibility will not apply to payments a consumer makes by
other means, such as by telephone or electronically, if the creditor accepts
payments in this manner. Also, these provisions will apply to all open-end credit,
similar to the Regulation Z rules issued earlier this year.

For credit card accounts, a creditor may not impose a separate fee to allow
consumers to make a payment by any method, such as by mail, electronically, or
by telephone, unless the method involves an expedited service by a customer
service representative of the creditor. This is similar to the requirements outlined
under the CARD Act. The proposal clarifies that this requirement would not
affect fees imposed after the due date, such as a late fee, and also clarifies that
“expedited” means crediting the payment on the same day as received or the
next business day if the payment is received after the creditor’s cut-off time. The
proposal also clarifies that the expedited service must be conducted by a live
customer service representative in order for a fee to be charged, which would
exclude automated systems.

The CARD Act prohibits a card issuer from imposing a late fee or finance charge
for a late payment if the issuer makes a material change in the mailing address,
office, or procedures for handling cardholder payments and the change causes a
material delay in crediting a payment made during the 60-day period after the
change is made. These provisions will only apply to credit cards.

The proposal implements this provision and clarifies it applies only to addresses
and offices, including branches, where payments are accepted. The proposal
also clarifies “material change” to mean a delay that would result in a late
payment fee or charge and also indicates creditors may continue to impose
finance charges for credit cards without grace periods, notwithstanding these
provisions.

V. Timely Settlement of Estates

Consistent with the CARD Act, card issuers must adopt reasonable procedures
to ensure that the administrator or executor of an estate can determine and pay
the balance on the deceased credit card account in a timely manner. These
provisions will only apply to credit cards, and card issuers may use their current
procedures, as long as they otherwise comply with these requirements.

Under these provisions, creditors may not impose fees or charges on these
accounts upon receiving a request for the amount of the balance from an
administrator or executor, even if there is another authorized user on the
account.

                                         11
However, such fees may be imposed if they apply to time periods before the
request was made or if there is a joint accountholder.

The creditor may receive the request for the balance by writing or by telephone,
and the creditor must then provide the information in a timely manner either in
writing or by telephone. Thirty days will be considered “timely,” and these
provisions do not preclude creditors from providing this information to other
appropriate persons, in addition to administrators and executors.

VI. Evaluation of Consumer’s Ability to Pay

The Card Act prohibits creditors from opening a new credit card account, or
increasing the credit limit for an existing account, unless the creditor considers
the consumer’s ability to make the required payments. For credit limit increases,
these provisions will apply when the request is made by the consumer or when
the card issuer unilaterally decides to increase the limit.

The proposed rules will interpret this to mean the ability to make the required
minimum payments. Since the creditor will not know the exact amount of the
minimum payments at the time it is analyzing the consumer’s ability to make the
payments, the proposal will allow creditors to use a reasonable method to
estimate this amount. In these situations, the creditor should make this estimate
based on the consumers using the full credit line and using the minimum
payment formula and interest rate that applies to the account.

Creditors must have reasonable policies and procedures in considering the ability
to make these payments, and they may consider credit reports, credit scores and
other factors consistent with Regulation B, the Equal Credit Opportunity Act. The
creditor may rely on this information or on information provided by the consumer
and there is no requirement that the creditor would have to otherwise verify the
information. Also, this determination of income, assets, or other factors must be
based on facts and circumstances known at the time the new account is opened
or when the credit limit is increased.

VII. Provisions Applicable to Underage Consumers and College Students

Consistent with the CARD Act, the proposal will prohibit creditors from issuing a
credit card to a consumer under the age of 21, unless:
• He or she has obtained the signature of a cosigner who is at least 21 and has
   the means to repay the debt and agrees to joint liability; or
• Alternatively, the consumer under the age of 21 may provide information
   indicating he or she has the ability to make the required payments.

These provisions will only apply to credit cards even though certain language in
the CARD Act appeared to extend this to other types of open-end accounts.


                                        12
This will only apply to the opening of a credit card account, as opposed to other
situations in which credit cards are issued, such as when cards are replaced or
reissued. However, if an individual has assumed joint liability, the credit limit may
not be increased unless he or she agrees in writing to assume joint liability for
this increase.

The individual assuming joint liability may include a cosigner, guarantor, or joint
applicant and this liability may continue after the consumer reaches 21, if this is
consistent with the agreement between the parties. The “ability to repay” will
mean the ability to make the minimum payments. The ability to make the
minimum payment will also apply to the consumer under the age of 21 who
chooses to demonstrate that he or she has the ability to make the required
payments.

The date for determining whether the consumer is under the age of 21 will be the
date the application is submitted or the date the consumer requests a credit limit
increase. If the increase is provided in the absence of a request, this date will be
the date the increase was considered by the creditor.

These provisions will not apply to consumers under the age of 21 who are added
as an authorized user and who would have no liability for the debt. Those
assuming joint liability do not have to agree in writing to assume liability for a
credit line increase if they were the ones who requested the increase.

VIII. Fee Limitations

The proposal implements the provisions in CARD Act with regard to fee
limitations. The proposal will prohibit creditors from imposing required fees
(other than late payment fees, over-the-limit fees, and returned payment fees)
during the first year of the account if they exceed 25% of the credit limit. If this
limit is exceeded, the creditor may comply if it reverses the charges, and
associated interest, at the end of the billing cycle in which they were imposed.

IX. Allocation of Payments

Under the proposal, when a consumer makes a payment in excess of the
required minimum periodic payment for a credit card account, the card issuer will
be required to allocate the excess amount first to the balance with the highest
APR and then any remaining portion to the other balances in descending order
based on the applicable APR. Issuers will be permitted to allocate an excess
payment based on the APRs and balances on either the date the preceding
billing cycle ends, the date the payment is credited to the account, or any day in
between.




                                          13
Issuers will be required to comply with the allocation of payments provisions even
if doing so results in the loss of any grace period on a consumer’s card balance.
These proposed provisions apply only to credit card accounts, and not to all
open-end consumer credit plans.

Special Rule for Balances Subject to Deferred Interest or Similar Programs

Under the proposal, when a credit card account balance is subject to a deferred
interest or similar program, the issuer must allocate any excess payment amount
first to that balance during the two billing cycles immediately preceding expiration
of the deferral period.

In addition, when a balance is subject to such a deferred-interest type of program
that provides that the consumer will not be obligated to pay interest that accrues
on the balance if it’s paid in full prior to the expiration of a specified period, that
balance will be treated as having a 0% APR for purposes of allocating any
excess payment.

X. Limitations on the Imposition of Finance Charges

The proposal will prohibit issuers from applying the “double-cycle billing”
computation method to consumers’ card balances. Specifically, issuers will be
prohibited from imposing finance charges as a result of the loss of a grace period
on a credit card account if those charges are based on balances for days that
precede the most recent billing cycle.

Furthermore, an issuer will be prohibited from imposing finance charges as a
result of the loss of a grace period on a credit card account if those charges are
based on any portion of a balance subject to a grace period that was repaid prior
to the expiration of the grace period. Issuers will not be required to use a
particular method to comply with this requirement, but the proposal includes an
example of an acceptable method.

The proposal includes an exception to the prohibitions on double-cycle billing and
charges on balances repaid within the grace period; these prohibitions will not
apply to any adjustment to a finance charge as a result of the resolution of a
dispute or the return of a payment for insufficient funds.

XI. Limitations on Increasing APRs, Fees, and Charges

The proposal will generally prohibit card issuers from increasing APRs, fees, or
finance charges (referred to as “rate(s)” in this comment call) that are currently
disclosed as: (1) fees for the issuance of availability of credit; (2) fixed finance
charges and minimum interest charges; or (3) fees for required insurance, debt
cancellation, or debt suspension coverage.


                                          14
The restriction will apply to both new transactions and “outstanding balances”—
which TILA defines as the amount owed (balance) as of the fourteenth day after
notice of an increase was provided.

Under TILA, as amended by the CARD Act, issuers are only prohibited from
increasing “rates” that apply to outstanding balances. However, the Fed believed
the rule would be more easily understood if rather than “not prohibiting” increases
in rates for new transactions, the rule instead allow such increases as an
exception to the general prohibition.

The non-mutually exclusive exceptions to the prohibition are the:
   • Temporary rate exception;
   • Variable rate exception;
   • Advance notice exception;
   • Delinquency exception;
   • Workout and temporary hardship arrangement exception; and
   • Servicemembers Civil Relief Act exception.

Temporary Rate Exception: A creditor may increase a “rate” following a period of
at least 6 months, so long as: (1) prior to commencement, the length of the
period and rate to follow were disclosed; (2) after the period, the creditor does
not apply a higher rate than disclosed; and (3) the creditor does not apply the
previously-disclosed rate to transactions that occurred prior to the period.

Variable Rate Exception: A creditor may increase a “rate” that varies according
to an index that is not under the creditor’s control and is publicly-available.
Issuers may not increase a variable rate by changing the method used to
determine that rate. However, issuers may change the day of the month on
which index values are measured to determine changes to the rate.

Advance Notice Exception: Generally, after a credit card account has been open
for at least one year, the issuer may increase the “rate” for new transactions
provided it has complied with the current notice requirements for “changes in
terms,” “supplemental credit devices and additional features,” and “increases in
rates due to delinquency or default or as a penalty.” While an issuer may
increase the rate for new transactions after the first year, it may not increase the
rate for an existing balance that resulted from transactions which occurred during
the first year; the Fed terms this the “protected balance.”

In determining the repayment terms for a “protected balance,” the issuer may use
one of the two methods included in the proposal. The first method requires the
amortization period for the protected balance to be no less than 5 years,
beginning when the increased rate becomes effective. The second method
requires the minimum periodic payment for the protected balance to be no more
than twice the minimum payment required by the method used prior to the


                                         15
increase. Alternatively, an issuer may use a different method, so long as it is “no
less beneficial” to the consumer than one of the two provided.

Delinquency Exception: An issuer may increase a “rate” if it has not received the
minimum periodic payment within 60 days of the due date. However, the issuer
must have sent a clear and conspicuous notice of the increase to the consumer
stating the reason for the increase and that the increase will cease under certain
conditions. Specifically, if the issuer receives 6 consecutive minimum payments
on or before the due date following the increase, the increase rate must be
reduced to its previous level.

Workout and Temporary Hardship Arrangement Exception: An issuer may
increase a “rate” upon the completion or failure of a workout or temporary
hardship arrangement, provided:
    • A clear and conspicuous disclosure of the terms of the arrangement was
       sent prior to commencement; and
    • Any increased rate may not exceed the rate that existed prior to
       commencement of the arrangement.

Servicemembers Civil Relief Act Exception (SCRA): If a “rate” has been
decreased pursuant to the SCRA, an issuer may increase that rate once the
SCRA no longer applies. However, the issuer may not apply a higher rate to
transactions that occurred prior to the decrease than the previous rate that had
applied to those transactions.

The general prohibition on increasing “rates” will continue to apply to card
account balances subsequent to the following:
   • The account being closed (by the consumer or issuer);
   • The account being acquired by another issuer; or
   • The card account balance being transferred from the issuer to another
      credit account provided by that issuer—or its affiliate or subsidiary—
      (transfer to a home equity account is excluded).

However, the prohibition will cease to apply if the consumer chooses to transfer a
credit card balance to a card provided by a different issuer.

XII. Requirements for Over-the-Limit Transactions

The proposal defines an “over-the-limit transaction” as an extension of credit
necessary to complete a transaction—at the consumer’s request—that causes
the credit card limit to be exceeded. The definition is not intended to cover fees
or charges by the creditor that may cause the limit to be exceeded.




                                         16
Opt-In (Consent) Requirement

Generally, for credit card accounts under an open-end (not home-secured)
consumer credit plan, the proposal will prohibit a creditor from assessing a fee for
paying an over-the-limit transaction unless the consumer is given notice and a
reasonable opportunity to opt-in to the creditor’s payment of the transactions, and
chooses to do so. The proposal includes illustrative examples of “reasonable
opportunity.” The opt-in notice may be oral, electronic, or written; the creditor
must provide an opt-in notice immediately prior to and contemporaneously with
obtaining oral or electronic consent. However, creditors will not need to comply
with the electronic disclosure requirements of the E-Sign Act.

If a consumer opts-in, the creditor will need to provide notice of the right to opt-
out of future over-the-limit fees after such a fee has been assessed. In addition
to disclosure of over-the-limit fees on the periodic statement, the proposal will
require the opt-out notice to be included on the front of any page of each periodic
statement if such a fee was assessed in that period. An opt-out notice will be
required regardless of whether the fee was imposed due to an over-the-limit
transaction initiated by the consumer in the prior cycle or because the consumer
failed to reduce the account balance below the credit limit in the next cycle.

Other Information Regarding the Opt-In Requirement
   • The requirement will not apply to creditors that have the policy and
       practice of declining to pay or authorize any transactions they reasonably
       believe would exceed the credit limit.
   • The requirement will apply whether the creditor assess over-the-limit fees
       per transaction or as a periodic account or maintenance fee imposed each
       cycle for the creditor’s payment of the transactions regardless of whether
       the credit limit was exceed during a particular cycle.
   • The requirement will apply to all credit card accounts, even those opened
       prior to the effective date of the rule.
   • Prior to the consumer opting-in, the creditor will be permitted to pay an
       over-the-limit transaction, so long as no fee is assessed.
   • A creditor may not assess an over-the-limit fee unless the consumer has
       opted-in, even if the creditor is unable to avoid paying a transaction that
       exceeds the limit. For example, in some cases, a merchant may not
       submit credit card transactions for authorization; in such instances, if the
       transaction exceeds the credit limit, no over-the-limit fee may be assessed
       if the consumer had not opted-in. Similarly, no fee may be assessed if the
       final transaction amount exceeds the amount submitted for authorization
       and results in an over-the-limit transaction.
   • However, a creditor may assess fees unrelated to the payment of an over-
       the-limit transaction itself even if the consumer has not opted-in. Such as,
       a balance transfer fee—provided the fee is assessed regardless of
       whether the transfer exceeds the credit limit.


                                         17
   •   Even if a consumer has opted-in, a creditor is not required to pay or
       authorize over-the-limit transactions.
   •   For joint accounts, a creditor may act on the request to opt-in or -out by a
       jointly-liable account holder.
   •   Once notified, the creditor will need to implement a consumer’s request to
       opt-out as soon as reasonably practicable.

Content and Format

Creditors will need to provide consumers with the opt-in notice before an over-
the-limit fee may be assessed; the notice must include:
   • The dollar amount of any fees or charges. Creditors that use a range of
       fees will be permitted to disclose that the consumer may be assessed a
       fee “up to” the maximum fee or provide the range.
   • An explanation that an over-the-limit transaction could result in the loss of
       a promotional rate, imposition of a penalty rate, or both—if applicable.
   • Information about the consumer’s right to affirmatively consent (opt-in) to
       the creditor’s payment of the over-the-limit transaction, including the
       methods the consumer may use to opt-in.
   • The proposal includes model opt-in notices that may be used (or a notice
       substantially similar to them) as a safe harbor for compliance purposes.

At the creditors’ option, the notice may include:
    • A brief description of the potential benefits to opting-in—such as that
       certain transactions that would otherwise be declined may be approved.
    • A statement that payment of over-the-limit transactions is at the creditor’s
       discretion.

Prohibited Practices

In connection with over-the-limit fees, creditors will be prohibited from:
    • Imposing more than one over-the-limit fee in a given billing cycle.
    • Imposing a fee for the same over-the-limit transaction(s) in more than 3
      billing cycles; furthermore, fees may not be imposed for the second or
      third cycle unless the account balance continues to exceed the limit by the
      due date of either cycle. However, the limitation does not apply if the
      consumer engages in additional over-the-limit transactions in either of the
      two subsequent cycles.
    • Imposing an over-the-limit fee caused by the creditor’s failure to promptly
      replenish the consumer’s available credit after the payment has been
      posted to the account.
    • Conditioning the amount of credit granted on the consumer opting-in to the
      over-the-limit feature.
    • Imposing an over-the-limit fee if the limit is exceeded solely because of
      fees or interest charged (this includes all “charges imposed as part of the
      plan”) by the creditor during the billing cycle.
                                         18
XIII. Special Rules for Marketing Open-End Credit to College Students

Definitions

“College student credit card” – a credit card issued under a credit card account
under an open-end (not home-secured) consumer credit plan to any college
student. The term will encompass college affinity cards.

“Affiliated organization” – an alumni organization or foundation affiliated with or
related to an institution of higher education.

“College credit card agreement” – any business, marketing, or promotional
agreement between a card issuer and an institution of higher education or an
affiliated organization in connection with which college student credit cards are
issued to currently-enrolled college students. The term will encompass an
agreement even if the marketing is targeted at alumni, faculty, staff, and other
non-student consumers, as long as cards may also be issued to students in
connection with the agreement.

Public Disclosure of Agreements

The proposal will require institutions of higher education to publicly disclose any
credit card marketing contracts or other agreements made with an issuer. The
proposal includes examples on how to fulfill this requirement, such as by posting
the documents on the institution’s website, or by providing them for free upon
request. In addition, institutions will be prohibited from redacting any contracts or
agreements they are required to publicly disclose.

Prohibited Inducements

A card issuer will be prohibited from offering students at an institution of higher
education any tangible items to induce them to apply for an open-end consumer
credit plan (offered by that issuer), if the offer is made at or near (within 1,000
feet of) the campus, or at an event sponsored by or related to the institution. The
restriction will apply regardless of whether the person to whom the tangible item
is given actually applies for or opens and account. Furthermore, the restriction
will apply to offers mailed to students living on or near the campus.

An event would be considered to be related to the institution if the marketing of
the event uses the name, emblem, mascot, or logo of the institution, or other
words, pictures, or symbols identified with the institution in a way that implies that
it endorses or sponsors the event.




                                          19
Under the proposal, issuers will need to implement reasonable procedures for
determining whether someone is a student before giving them the tangible item.
For example, simply asking an individual whether he or she is a student would
suffice, and the issuer may rely on the response.

Annual Report to the Board

Creditors that are a party to one or more college credit card agreements will be
required to register with the Fed and submit annual reports regarding the
agreements. Creditors that were a party to agreements at any time during 2009
will be required to register by February 1, 2010 and submit their initial report by
February 22, 2010.

Annual reports will need to include:
   • A copy of each agreement in effect during the period covered by the
     report;
   • The total dollar amount of payments pursuant to the agreement from the
     creditor to the institution (or affiliated organization) during the period, and
     how the amount is determined;
   • The number of card accounts opened pursuant to the agreement during
     the period;
   • The total number of card accounts that were open at the end of the period;
     and
   • A copy of any memorandum of understanding that relates to the
     agreement or that controls any obligations or distribution of benefits.

XIV. Internet Posting of Credit Card Agreements

Under the proposal, issuers of credit cards will be required to post the
agreements for each plan they currently offer to the public on their websites and
also to submit the agreements to the Fed for posting on its publicly-available
website on a quarterly basis. The Fed expects to provide additional details
regarding the electronic submission process in a technical specifications
document that will be posted on its website.

The proposal includes a de minimis exception based on an issuer’s total number
of open accounts. Specifically, an issuer will not be required to submit any
agreements if it has fewer than 10,000 open credit card accounts, as of the end
of the previous quarter.

Any card issuer not covered under this exception that offered one or more credit
card agreements as of December 31, 2009 will be required to register with the
Fed no later than February 1, 2010. Under the proposal, if an issuer makes
changes to an agreement previously submitted to the Fed—even if the changes
are nonsubstantive—the issuer will be required to submit the entire revised
agreement.

                                         20
An agreement would be deemed “offered” if the issuer is soliciting or accepting
applications for new accounts that would be subject to that agreement. In
addition, an issuer is deemed to offer a credit card agreement to the public even
if the issuer solicits, or accepts applications from, only a limited group of persons.

Agreement

The proposal defines “agreement” or “credit card agreement,” as a written
document(s) evidencing the terms (“pricing information”) of the legal obligation or
prospective legal obligation between a card issuer and a consumer for a credit
card account. An agreement would be deemed to include certain information,
such as APRs and fees, even if the issuer does not otherwise technically include
this information in the document evidencing the terms of the legal obligation.

Agreements Posted on Card Issuer’s Website

Issuers will be required to provide each individual cardholder with access to his
or her specific credit card agreement, by either: (1) posting it on the issuer’s
website; or (2) making it available upon request.

Issuers making agreements available upon request must accept requests
through both its website and by calling a toll-free number listed on the website.
Issuers will be required to send or otherwise make the agreement available
within 10 business days of the request. However, such issuers may provide the
agreement electronically or in paper form, regardless of the consumer’s specific
request.

Under the proposal, the requirement to provide access to agreements applies to
all credit card accounts, regardless of whether the agreements are required to be
submitted to the Fed—including agreements of issuers that qualify for the de
minimis exception and plans that are no longer offered to the public.




                                          21
            QUESTIONS TO CONSIDER REGARDING THE
                REGULATION Z PROPOSED RULE
       (The Fed has specifically requested comment on these issues)

1. Should the required compliance date for the Regulation Z final rules issued
   earlier this year remain July 1, 2010 for those provisions in which the CARD
   Act does not require compliance by February 22, 2010?




2. For the requirement to post credit card agreements on websites or otherwise
   make them available, the Fed is proposing to exempt creditors with fewer
   than 10,000 accounts. Is this level appropriate?




3. When a card issuer substitutes or replaces a credit card, the Fed has
   provided guidance as to whether the issuer must provide a change-in-terms
   notice or provide notice of a new account. Are there additional facts and
   circumstances that should be considered? Are there alternative approaches
   that should be considered?




4. Because of the requirement that due dates must be on the same date each
   month, due dates cannot be on the 29th, 30th, or 31st of each month since not
   all months have these dates. What will be the operational burden of changing
   due dates if they currently fall on these dates and the burden of processing all
   payments on the 1st through 28th of each month?




                                        22
5. For the minimum payment warnings, card issuers must be prepared to
   provide information on three credit counseling organizations. Would a
   different number be more appropriate? Card issuers will be required to verify
   and update this information annually. Is this appropriate or should it be more
   or less frequently?




6. The Regulation Z rules issued last year provided an exemption to the
   minimum payment warnings when there was a specified repayment period in
   the account agreement and the minimum payment will amortize the balance
   over this period. The proposed rule eliminates this exemption. Should the
   exemption be retained since, for example, the 36-month disclosure may not
   be helpful when this fixed period is more than 3 years? For these types of
   fixed payment accounts, do consumers tend to repay within the fixed period
   such that the 36-month requirement would not be useful?




7. The requirement to provide the 45-day change-in-terms notice does not apply
   if the consumer agrees to the change. This is intended to be very limited and
   would not apply when the consumer requests that an account be reopened or
   requests an upgrade to a different account with different credit and features,
   such as reward features, as it would be difficult to determine if this was
   suggested by the creditor. What are the operational or other burdens of this
   approach, since situations requiring a change-in-terms notice would result in
   delays?




                                        23
8. For the requirement that cut-off times be no earlier than 5 PM, is it
   appropriate that this should apply to the time zone of the location specified by
   the creditor for receipt of payments for those payments not made by mail?
   Somewhat different rules apply for in-person payments, such as that the cut-
   off time will be the time the branch or office closes. However, these “in-
   person” provisions will only apply to banks and thrifts, and not to credit unions
   or retailers, although the exclusion for credit unions may be inadvertent. Do
   you agree with this approach?




9. Creditors will not be permitted to charge fees after receiving a request for the
   balance from the administrator or executor of the deceased accountholder’s
   estate. Should creditors be able to resume charging fees if the administrator
   or executor fails to pay the balance within a certain period of time? The
   proposal indicates the creditor should provide the balance within 30 days after
   receiving the request from the administrator or executor. Is this a sufficient
   amount of time?




10. When opening an account or increasing the credit limit, the creditor must
    determine if the consumer can afford the minimum payments. Are there other
    methods creditors may use to estimate these minimum payments? As
    proposed, creditors will not be required to verify information, such as that
    obtained from the consumer or from credit reports. Should there be a
    requirement to verify this information?




                                         24
11. Should creditors be required to segregate the over-the-limit opt-in notice from
    other account disclosures? Such a requirement may ensure that the
    information is not obscured within other account documents and overlooked
    by the consumer, for example—in preprinted language in the accounting
    opening disclosures—leading a consumer to inadvertently consent to having
    the over-the-limit transactions paid or authorized by the creditor.




12. Once consumers have opted-in, should creditors be required to provide them
    with written confirmation in order to verify that they intended to make the
    election?




13. Should consumers be allowed to opt-in and -out using each of the three
    methods (orally, electronically, and in writing)?




14. Should creditors be allowed to obtain consumer consent for the payment of
    over-the-limit transactions prior to effective date of the final rule? If so, under
    what circumstances? Such an approach could allow creditors to phase in
    their processing of consumer opt-ins and alleviate the compliance burden that
    may otherwise occur if notices could not be sent, and opt-ins obtained until
    February 22, 2010.




15. Is additional guidance necessary for an over-the-limit fee that is determined
    by other means (as opposed to a flat fee)—such as a percentage of the over-
    the-limit transaction?




                                          25
16. Should the rule permit or require any other information to be included in the
    opt-in notice?




17. Would it be helpful if the Fed established a safe harbor for implementing opt-
    out requests—such as five business days from the date of request?




18. The proposal will prohibit creditors from imposing an over-the-limit fee if the
    limit is exceeded solely because of fees or interest charged by the creditor
    during the billing cycle. Are there any operational issues that may arise from
    the proposed prohibition?




19. The proposed definition of “college student credit card” will include affinity
    cards. Should the Fed create an independent definition of affinity cards?




20. A card issuer will be prohibited from offering students tangible items to induce
    them to apply, if the offer is made at or near (within 1,000 feet of) the campus.
    Are there any other appropriate ways to determine whether a location is
    “near” the campus?




                                          26
21. Should additional information be included in the annual report issuers will
    submit in regard to college student credit cards?




22. The proposal defines “agreement” as a written document evidencing the
    terms of the legal obligation between an issuer and a consumer for a credit
    card account. An agreement would be deemed to include certain information,
    such as APRs and fees, even if the issuer does not otherwise technically
    include this information in the document evidencing terms of the legal
    obligation. Should more or less information be included in “agreement”?




23. The proposal will require an issuer that makes changes to an agreement
    previously submitted to the Fed—even if nonsubstantive changes—to submit
    the entire revised agreement. Should nonsubstantive changes require
    resubmission?




24. The proposed de minimis exception would not alleviate the administrative
    burden on large issuers of submitting agreements for credit card plans with a
    very small number of open accounts. Should there be a de minimis exception
    applicable to a small credit card plan offered by issuers of any size, and if so,
    how should “credit card plan” be defined?




25. Any additional comments, questions, or concerns with the proposed rule?




                                         27
                                                        July 30, 2009


    Fed Requests Comments on Regulation
     Z Rules Implementing the New Credit
                  Card Law
Executive Summary

•   The Federal Reserve Board (Fed) has issued an interim final rule amending
    Regulation Z, the Truth in Lending Act (TILA), that will require creditors to
    adopt reasonable policies and procedures to ensure that periodic statements
    for any open-end consumer credit account are mailed or delivered at least 21
    days before the payment is due in order to be able to charge a late fee or to
    otherwise consider the payment as late. The rule will also require creditors to
    provide a 45-day notice of a change in the interest rate or other significant
    changes to the terms of the credit card agreement. These provisions will also
    allow consumers to reject these changes if they inform the creditor before
    they go into effect.
•   This rule is the first stage in the implementation of the Credit Card
    Accountability, Responsibility and Disclosures Act of 2009 (CARD Act), which
    amended TILA to establish fair practices for credit cards and other open-end
    credit plans. This rule implements those provisions of the CARD Act that will
    go into effect on August 20, 2009. The Fed will issue additional rules to
    implement the provisions that go into effect on February 22 and August 22,
    2010.
•   The provisions in the CARD Act with regard to delivering periodic statements
    at least 21 days before the due date apply to all open-end credit, in addition to
    credit cards. The provisions with regard to providing a 45-day notice for
    change in terms will only apply to credit cards.
•   CUNA has been in contact with the Fed and other key policymakers over the
    past several weeks to resolve the very difficult compliance challenges
    associated with providing periodic statements at least 21 days before the
    payment is due. The interim final rule provides very limited relief by indicating
    in the supplementary information that “for a short period of time after August
    20,” periodic statements for open-end credit other than credit cards may
    disclose due dates that are inconsistent with the 21-day requirement, as long
    as there is a prominent disclosure either on or with the statement that the
    payment will not be treated as late if received within 21 days after the
    statement is mailed. CUNA will continue to work with the Fed and other key
    policymakers to ensure that the final version of this rule provides additional
    flexibility.
•   The interim final rule is effective as of August 20, 2009. Comments are
    due to the Fed by September 21, 2009 and are due to CUNA by September
    9, 2009. If commenting directly to the Fed, you must refer to Docket No.
    R-1364.

Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to
Senior Vice President and Deputy General Counsel Mary Dunn at
mdunn@cuna.com and to Senior Assistant General Counsel Jeff Bloch at
jbloch@cuna.com; or mail them to Mary and Jeff in c/o CUNA’s Regulatory
Advocacy Department, 601 Pennsylvania Avenue, NW, South Building, 6th Floor,
Washington, DC 20004. You may also contact us if you would like a copy of the
interim final rule or you may access it on the Internet at the following address:

http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20090715a1.pdf

BACKGROUND

In January 2009, the Fed issued a final rule that included comprehensive
changes to the open-end credit rules under Regulation Z, as well as the official
staff commentary, which primarily affect credit cards and other revolving credit
plans. These include comprehensive changes to the format, timing, and content
requirements for the credit card application and solicitation disclosures, account-
opening disclosures, periodic statements, change-in-term notices, and
advertising provisions. Click below for more information:

http://www.cuna.org/reg_advocacy/member/download/finalanalysis_fed_020909.
pdf

At the same time, the National Credit Union Administration, the Fed, and the
other federal financial institution regulators issued a final rule under the Unfair or
Deceptive Acts or Practices (UDAP) Act that prohibits or restricts credit card
practices. Click below for more information:

http://www.cuna.org/reg_advocacy/member/analysis/ncua_022309.html

In May 2009, the CARD Act was enacted that amended TILA to include many of
the acts or practices that were included in the UDAP rule that was issued in
January 2009 and also included provisions of the Regulation Z rule that was
issued at that time. However, there are a number of differences, such as
expanding the requirement for sending periodic statements 21 days in advance
to all open-end consumer credit, while the UDAP rule limited this provision to

                                           2
credit cards. The CARD Act also includes provisions that were not included in
the rules issued in January 2009.

The Fed has now issued the first in a series of rules to implement the CARD Act.
This interim final rule implements the provisions that will be effective on August
20, 2009. These include the requirement to provide periodic statements 21 days
in advance and the requirement to provide a 45-day notice when the rate is
increased or if there is another significant change to the terms of the credit card
agreement. The Fed will later issue rules to implement the provisions that will be
effective on February 22 and August 22, 2010. These rules will not affect
provisions of the Regulation Z and UDAP rules that were issued in January 2009
to the extent they are not addressed in the CARD Act.

DESCRIPTION OF THE INTERIM FINAL RULE AND CHANGES TO THE
OFFICIAL STAFF COMMENTARY

Mailing Periodic Statements at Least 21 Days Before Payment is Due

Under the CARD Act, creditors must adopt reasonable policies and procedures
to ensure that periodic statements for any open-end consumer credit account are
mailed or delivered at least 21 days before the payment is due in order to be able
to charge a late fee, or to otherwise consider the payment late, and this will apply
to all open-end consumer credit. This is in contrast to most other provisions of
the CARD Act, which are limited to credit cards.

CUNA has been in contact with the Fed and other key policymakers over the
past several weeks to resolve the very difficult compliance challenges associated
with providing periodic statements at least 21 days before the payment is due.
The interim final rule provides very limited relief by indicating in the
supplementary information that “for a short period of time after August 20,”
periodic statements for open-end credit other than credit cards may disclose due
dates that are inconsistent with the 21-day requirement, as long as there is a
prominent disclosure either on or with the statement that the payment will not be
treated as late if received within 21 days after the statement is mailed. CUNA will
continue to work with the Fed and other key policymakers to ensure that the final
version of this rule provides additional flexibility.

Under the CARD Act and the interim final rule, the 21-day requirement will apply
to both the payment due date and the expiration of the grace period. If the
account has a grace period, this means the statement needs to be delivered 21
days before the due date and 21 days before the grace period ends, if these
dates differ, and neither a finance charge nor a late fee may be imposed if this
requirement is not satisfied. If the account does not have a grace period, then
the statement needs to be delivered 21 days before the due date in order to be
able to impose a late fee. Until now, TILA had exceptions to the previous 14-day
requirement if due to acts of God, war, natural disaster, strike, or other causes.

                                         3
The CARD Act has deleted these exceptions.

Creditors with reasonable procedures to ensure statements are delivered within a
certain amount of days from the closing date of the billing cycle will be able to
add that number to the 21-day period for purposes of determining the due date
that complies with these provisions. For example, if the procedure ensures that
statements are delivered three days after the billing cycle ends, then the due
date, and the date in which any grace period expires, may be 24 days after the
billing cycle ends.

Under the CARD Act, the payment cannot be considered late for any purpose if
the 21-day requirement is not satisfied. The official staff commentary indicates
that treating a payment as late includes increasing the annual percentage rate
(APR) as a penalty and reporting the consumer as delinquent to a credit bureau,
in addition to imposing a late fee. However, imposing a finance charge in
connection with a periodic interest rate will be acceptable for those accounts that
do not have a grace period.

Under the official staff commentary, the “payment due date” will mean the date in
which the creditor requires the consumer to make the required minimum periodic
in order to ensure that the payment is not considered late. This date is based on
the legal obligation between the parties, which means this date cannot be the
end of any additional courtesy period that may extended. Similarly, some states
require that a certain number of days elapse after the due date before a late fee
may be imposed. Again, the due date will be based on the legal obligation
between the parties and not the extended date that may be provided under state
law.

The UDAP rules issued in January permitted a period shorter than 21 days if
periodic statements are delivered electronically and if payments are received
electronically. Under the CARD Act and the interim final rule, the 21-day period
will apply even if statements are delivered and payments are made electronically.
Also, the official staff commentary will permit creditors to allow consumers to pick
up their statements. In these situations, the statements must be made available
21 days before the due date.

As for implementation, it will be the date that the periodic statement is sent that
will determine if a creditor must comply with these new requirements. For
example, if the statement is sent before August 20, 2009, then the CARD Act and
interim final rule will not apply, even if the due date is after August 20th.

Providing 45-day Notice of Change in Interest Rate or Other Significant Terms

Under the CARD Act, creditors must provide consumers with a 45-day advance
notice of a rate increase or other significant change to the terms of the credit card
agreement. There must also be a disclosure of the consumer’s right to cancel

                                          4
the account prior to the effective date of the rate increase or the change in the
significant term. This notice requirement does not apply if the consumer has
agreed to the particular change. The CARD Act and the interim final rule also
provide the following three exceptions to the requirement to provide the notice of
a rate increase:
• If the change is due to an expiration of a specified period of time, provided
    that the length of this time period and the rate that would then apply was
    disclosed to the consumer before this time period began. The disclosure
    must be in writing, and the rate that applies after the period ends may not
    exceed the rate before this time period began. Card issuers offering deferred
    interest or similar programs may use this exception.
• If the rate is variable and is increased according to the operation of a publicly
    available index that is not under the control of the creditor.
• If the rate increase is due to the completion of, or failure to comply with, the
    terms of a workout or temporary hardship arrangement, as long as the terms
    were disclosed in writing to the consumer before the commencement of the
    agreement. The rate that would then apply must not be higher than the rate
    that applied before the workout or temporary hardship arrangement. All these
    rates need to be disclosed and any rates disclosed that are variable must
    state that the rate may vary and how it is determined. The disclosure must
    also state that the consumer must make timely minimum payments to remain
    eligible for this arrangement, if applicable.

These notices must include a brief description of the right to cancel the account
before the effective date of the rate increase or other change disclosed in the
notice. The CARD Act also states that closing or cancelling the account pursuant
to this right to cancel will not constitute a default under the existing cardholder
agreement and does not trigger an obligation to immediately repay the obligation
in full or through a method no less beneficial then either:
• a payment schedule that amortizes the balance over five years or more; or
• a minimum payment that is a percentage of the balance that is no more than
    twice the percentage that applied before the cancellation of the account.

Unlike the requirement to provide periodic statements 21-days before the due
date, this provision on providing a 45-day notice before a rate increase or other
significant change in the terms of a credit agreement will only apply to credit
cards and not to home equity lines of credit (HELOCs), even if those accounts
are accessed through a credit card device. The existing change-in-terms notice
requirements will continue to apply to home-equity plans and other open-end
plans that are not credit card accounts. However, with the exception of home-
secured credit lines, open-end lines of credits that are not credit card accounts
will be subject to the revised change-in-terms notice requirements that are
outlined in the Regulation Z rule that was issued in January 2009 and which is
effective as of July 1, 2010.

The interim final rule identifies the “significant changes” that will require the 45-

                                           5
day notice, which include:
• APRs for purchases, cash advances, or balance transfers. This includes any
   discounted initial rate, premium initial rate, or penalty rate.
• Fees in connection with the issuance and availability of a credit card account,
   including fees for account activity or inactivity.
• Fixed finance charges or a minimum interest charge if it exceeds $1.
• Transaction charges imposed for use of the account.
• Grace periods.
• Balance computation methods.
• Cash advance, late payment, over-the-limit, and balance transfer fees, as well
   as returned payment fees.
• Required insurance, debt cancellation, or debt suspension fees.

For terms that are not “significant,” creditors may disclose these changes by
either giving the 45-day advance notice or providing notice of the amount of the
charge before the consumer agrees to or becomes obligated to pay the charge,
at a time and in a manner that the consumer would likely notice this disclosure.
Examples of changes that are not “significant” includes charges for documentary
evidence, reduction in finance charges, suspension of future credit privileges,
termination of an account or plan, or when the change results from an agreement
involving a court proceeding.

The 45-day notice must include the following information:
• A description of the change and state that it is being made to the account.
• The date the change becomes effective.
• The consumer’s right to reject the change prior to the effective date, unless
   the change is an increase in the required minimum payment or the consumer
   fails to make a required minimum payment within 60 days after the due date.
• Instructions for rejecting the change, along with a toll-free telephone number
   the consumer may use to notify the creditor of the rejection.
• If applicable, a disclosure that if the consumer rejects the change, then the
   consumer’s further use of the account will be terminated or suspended.

The 45-day notice is also required when the rate is increased due to a
delinquency, default, or penalty and must be provided after the occurrence of the
event that led to the rate increase. This notice will not be required for home
equity plans accessible by credit cards. The notice in connection with a
delinquency, default, or penalty must state the following:
• The increased rate has been triggered and the date that it will apply.
• The circumstances in which the increased rate will no longer apply.
• The consumer’s right to reject the penalty rate prior to the effective date,
    unless the consumer makes a payment that is more than 60 days late.
• Instructions for rejecting the change, including a toll-free number that the
    consumer may use.
• If applicable, that the consumer’s further use of the account will be terminated

                                        6
   or suspended if he or she rejects the increased rate.

Again, this notice will not be required for rate increases due to the consumer’s
failure to comply with the terms of a workout or temporary hardship arrangement.
For penalty rates imposed when a consumer exceeds the credit limit, this notice
is not required if a consumer already received a 45-day notice in situations in
which the creditor decides to decrease the credit limit and impose a penalty rate
if this decreased limit is exceeded.

Whether provided in connection with a rate increase, change in significant terms,
or due to delinquency or default, the interim final rule provides consumers with
the substantive right to reject the change if the creditor is notified before the
effective date. This expands the CARD Act provisions, which only included the
disclosure requirements. If the change is rejected, the creditor may not apply
that change, increase a rate, impose a fee, or otherwise treat the account in
default. Creditors may, however, terminate or suspend the account if the
consumer rejects the rate increase or changed term.

For a rate increase, change in significant terms, or for delinquencies or defaults,
the creditor also may not require repayment of the account in full or in a manner
no less beneficial than amortizing the balance for at least five years or no more
than doubling the minimum percentage due each month, as described above,
although a previously disclosed “floor” for minimum payments may still be
imposed if at some point it exceeds the payment that would apply under one of
these two repayment methods. In the alternative, creditors may use the
repayment method that applied to the account before the change was made. For
the five-year amortization period, creditors are also not required to recalculate
these payments if the consumer makes more than the minimum payment, and
payments may be adjusted if a variable rate changes to ensure that payments
are completed by the end of the five-year period.

As mentioned above, these protections will not apply for accounts that are more
than 60-days delinquent or for transactions that occur more than 14 days after
the notice is provided. The creditor may also place reasonable requirements on
how consumers may reject the change, such as requiring the primary
accountholder to provide notification of the rejection or requiring the
accountholder to supply the account number.

The official staff commentary clarifies that a consumer does not forfeit the right to
reject the change or rate increase, or revoke a rejection, if transactions are made
prior to the effective date, although creditors may also apply the terms of a pre-
existing promotional rate or deferred interest or similar program in situations in
which the consumer rejects the rate increase or changed term. However, if the
account is used for transactions that occur more than 14 days after the notice is
provided, then the creditor may apply the rate increase or changed term to those
specific transactions even if the consumer rejects the change or increased term

                                          7
prior to the effective date. This is to mitigate the effects if a consumer
deliberately conducts transactions after receiving the notice and then rejects the
increased rate or changed term shortly before the effective date to ensure that
the change does not apply to these recent transactions. Creditors may use the
date the transaction is charged to the account to determine if it meets the 14-day
requirement, as opposed to when the transaction is posted to the account.

Creditors may not apply the increased rate to the time period before the effective
date of the change and other changes can only apply to transactions occurring
after that time, not the entire account. For example, an increase in a transaction
fee can apply to specific transactions, but an increase in a monthly fee cannot be
imposed because it would apply to the entire account and not to a specific
transaction.

The interim final rule will apply to change-in-terms notices that are issued on or
after August 20, 2009. The rule will not apply to notices issued before that date,
even if the change is not effective until after August 20th. However, for
promotional rate programs that end after August 20th, a creditor will not be able to
raise the rate after the promotional period, unless the creditor provides the notice
as to the term and the rate or type of rate that will apply after the term ends,
unless that information has already been disclosed, regardless of whether the
notice is provided before or after August 20th. Also, the exception described
above for payments that are more than 60 days late will apply even if the 60-day
period began before August 20th.

            QUESTIONS TO CONSIDER REGARDING THE
               REGULATION Z INTERIM FINAL RULE

•   Please outline the operational problems associated with providing periodic
    statements at least 21 days before the due date. How are these problems
    different for credit cards, as opposed to other open-end credit? How much
    time will you need to comply with the new rule with regard to the 21-day
    requirement for credit cards and how much time will be needed for other
    types of open-end credit?




                                         8
•   Please outline the operational problems associated with providing the 45-day
    change-in-terms notice. Will you be able to comply with these provisions by
    August 20th? If not, how much more time will you need?




•   Which provisions of the new rule require additional clarifications?




•   Other comments?




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