- The Credit CARD Act of 2009 (Part 3 of 3)
- June 11, 2009 | Authors: James H. Mann; Scot D. Tucker; Andrew E. Owens
- Law Firms: Davis Wright Tremaine LLP - New York Office ; Davis Wright Tremaine LLP - Seattle Office ; Davis Wright Tremaine LLP - New York Office
The historic upheaval in the legislative and regulatory landscape of the credit card business continued late last month with the enactment of the “Credit CARD Act of 2009” (the “Act”), which amends the Truth in Lending Act (TILA), among other federal statutes. This upheaval—impacting issuers’ business models, straining processors’ compliance capabilities and materially affecting many other stakeholders, such as networks and consumers—has thus far included the amendments to Regulations AA (Unfair or Deceptive Acts or Practices) and Z (Truth in Lending) issued last December (the “December Rules”) by the Board of Governors of the Federal Reserve System (“Board”) and certain other agencies, and clarifications to the December Rules proposed this past April. As discussed in this advisory, the Act specifically mandates further rulemaking (in addition to giving the Board general regulatory authority with respect to its provisions) and also mandates certain reports that could lead to further legislation. Other prospective legislative activity could include regulatory consolidation and interest rate caps. Stakeholders that would be affected by the new rules should consider commenting on the advance notices and proposals.
While less comprehensive than the December Rules, the Act addresses several of the same issues—particularly with respect to Regulation AA. (As used below, the terms “Regulation AA” and “Regulation Z” refer to those regulations as amended by the December Rules.) Where the Act and the December Rules overlap, the Act often increases creditors’ obligations or reduces their rights. The Act also establishes certain new creditor obligations and consumer rights. Moreover, whereas the December Rules take effect July 1, 2010, the provisions of the Act generally take effect earlier, and in many instances mandate the issuance of final regulations by dates prior to July 1, 2010.
This advisory, which is the third in a series whose previous installments focused on the proposed clarifications issued in April, is not intended as a detailed analysis of the Act. Instead, the advisory provides brief summaries of the following:
- The provisions of the Act creating substantive (i.e., non-disclosure) rights and duties. The advisory first addresses the provisions of the Act that correspond to provisions of the December Rules and then turns to the provisions of the Act that do not correspond to provisions of the December Rules.
- The provisions of the Act creating rights and duties regarding disclosure. Again, the advisory first addresses the provisions that correspond to provisions of the December Rules and then turns to the other provisions.
- The provisions of the Act focusing on young consumers.
- Other statutory amendments made by the Act, including to the TILA penalty provisions, the Fair Credit Reporting Act (FCRA), the Electronic Fund Transfer Act (EFTA), and the Bank Secrecy Act (BSA).
- The more important of the many provisions of the Act that call for reports.1
I. Provisions creating substantive rights
The following provisions of the Act generally correspond with provisions in the December Rules.
- Payment mechanics
Timing of payments. Amended Secs. 163(a) and (b) of TILA generally correspond to §§22(a) - (c) of Regulation AA, which prohibit certain bank practices regarding the time in which consumers may make payments. §22(a) sets forth the general rule that a bank may not treat a payment as late unless it has provided a “reasonable amount of time” for the consumer to make payment; §22(b) then creates a safe harbor—i.e., a bank’s adoption of reasonable procedures designed to ensure that periodic statements are mailed or delivered at least 21 days before the due date. Sec. 163(a) converts this safe harbor into a mandate. In addition, whereas §22(c) excepts the imposition of finance charges due to the loss of a grace period from the general rule in (a)—to avoid conflict with former Sec. 163(a), which called for fourteen days’ notice prior to the last day of the grace period—new Sec. 163(b) simply bars the imposition of such charges unless the creditor has mailed or delivered to the consumer a periodic statement not later than twenty-one days before the end of the grace period. (Effective Aug. 22, 2009)
Due date. New Sec. 127(o)(2) of TILA is nearly identical to §10(d) of Regulation Z, which prohibits a creditor from treating a payment received by mail as late for any reason if the due date is on a day when the creditor does not accept payments by mail (including holidays and weekends), and the payment is received by mail on the next business day. Additionally, Sec. 127(o)(1) requires that the payment due date for a credit card account be “the same day each month.” (Effective Feb. 22, 2010)
Payment cut-off. Amended Sec. 164(a) of TILA generally corresponds with §§10(b)(1) and 10(b)(2)(ii) of Regulation Z. §10(b)(1) authorizes creditors to specify reasonable requirements that enable most consumers to make conforming payments without incurring a finance or other charge. As an example, §10(b)(2)(ii) allows a creditor to set a reasonable cut-off time for payments to be received on the due date but also creates a safe harbor of 5:00 p.m. Sec. 164(a) instead simply provides that payments received by 5:00 p.m. on the due date must not be subject to a finance charge. (Effective Feb. 22, 2010)
- Payment application. New Sec. 164(b)(1) of TILA generally corresponds to §23 of Regulation AA, which requires a bank to apply payments in excess of the minimum payment either (i) first to the balance with the highest APR, then to the balance with the next highest APR, etc. or (ii) pro rata among balances. Sec. 164(b) eliminates this option, requiring issuers to use the former method. In addition, consistent with the proposed clarifications to §22(b) issued in April, Sec. 164(b)(2) requires creditors to allocate payments in excess of the minimum payment wholly to a deferred interest balance, if any, during the two billing periods prior to the expiration of the deferred interest period. (Proposed §22(b) states that any amount left over after payment of the deferred interest balance is to be applied consistent with the payment allocation rules in §22; Sec. 164(b)(2), by contrast, is silent on payments in excess of the deferred interest balance.) (Effective Feb. 22, 2010)
- Increases in APRs and fees
New Secs. 171(a) and (b) and 172(a) and 172(b) of TILA generally correspond to §§24(a) and (b) of Regulation AA, which restrict APR increases. Whereas §24(a) bars APR increases on any “category of transactions,” (a term for which the agencies issued a proposed definition in April), Sec. 171(a) bars APR or fee increases on “outstanding balances” (discussed below), in each case subject to specified exceptions. Sec. 171(b)(2) and §24(b)(2) establish virtually identical exceptions for APR increases as part of variable rate plans. However, the regulatory and statutory exceptions also differ in certain respects, as summarized below:
Step-up APRs and advance notice. Under §24(b)(1) of Regulation AA, if a bank discloses at account opening that the APR will increase to a specified level upon the expiration of a specified period of time, that increase is permissible. §24(b)(3) goes on to authorize the bank to increase the APR, after the first year, pursuant to notice under §§9(c) or (g) of Regulation Z (discussed below) for transactions that occur more than seven days after provision of the notice. Sec 171(b)(1) of TILA, by contrast, permits an APR or fee to be increased upon the expiration of any specified period, if the length of the period and the increased APR were disclosed clearly and conspicuously in advance of the period, and the increased APR does not apply to balances existing before the start of the period.
Late payment. Whereas §24(b)(4) of Regulation AA allows an APR increase if the bank has not received the minimum payment due within thirty days after the due date, §171(b)(4) of TILA changes this period to sixty days after the due date, and further conditions the increase on (i) the creditor including with the notice of the increase under new Sec. 127(i) (discussed below) a clear and conspicuous written statement of the reason for the increase and that the increase will terminate not later than six months after it was imposed if the creditor receives timely minimum payments during that period and (ii) the creditor in fact terminating the increase after six months of timely minimum payments.
Workout/hardship. Whereas §24(b)(5) of Regulation AA permits an APR to be increased due to a consumer’s default under the terms of a workout arrangement (so long as the increased APR does not exceed the APR that applied prior to the arrangement), Sec. 171(b)(3) of TILA permits an APR or fee increase in the event of a consumer’s default or the completion of either a workout or a temporary hardship arrangement. (The agencies’ April proposal to clarify §24(b)(5) would expand it to cover hardship programs.) Sec. 171(b)(3) additionally provides that prior to the commencement of an applicable arrangement, the creditor must furnish the consumer with clear and conspicuous disclosure of the terms of the arrangement (including any APR or fee increases in the event of a default or the completion of the program).
The December Rules and the Act also differ in the time limits they apply to certain APR and fee increases. As discussed above, APRs may not be raised pursuant to §24(b)(3) during the first year after an account is opened. Sec. 172(a), by contrast, simply prohibits all APR or fee increases during the first year after account opening, unless the increase fits one of the Sec. 171(b) exceptions summarized above. In addition, new Sec. 172(b) mandates that a “promotional rate” (to be defined by the Board) must last at least six months, subject to “reasonable” exceptions to be established by the Board. (Effective Feb. 22, 2010)
- Repayment of outstanding balance. New Secs. 171(c) and (d) of TILA generally correspond to §24(c) of Regulation AA, governing repayment of outstanding balances. §24(c) applies to “protected balances,” i.e., amounts owed where an increased APR cannot be applied once the APR for those amounts has been increased pursuant to §24(b)(3) (comment 24(c)-1 makes clear that protected balances include amounts charged for seven days after notice of the increase is sent). By contrast, §171(c) applies to “outstanding balances,” i.e., amounts owed as of the end of the fourteenth day after the creditor sends notice of an increase to an APR or fee pursuant to new Sec. 127(i) (discussed below). The provisions of Regulation AA and the Act governing repayment of the covered balances are identical, however, requiring the creditor to provide the consumer one of the following methods of repayment (or a method no less beneficial to the consumer): (i) an amortization period of no less than five years, starting from the effective date of the increased APR; or (ii) a required minimum periodic payment that includes a percentage of the outstanding balance that is no more than twice the percentage required before the effective date of the APR increase. (Effective Feb. 22, 2010)
- Balance computation. New Sec. 127(j) of TILA generally corresponds with §§25(a) and (b) of Regulation AA, prohibiting double-cycle billing. Both provisions bar the imposition of finance charges on balances existing in previous billing cycles as a result of the loss of a grace period; Sec. 127(j) further prohibits imposing finance charges on any balance or portion of a balance in the present billing cycle that were repaid within the grace period. In addition, both Sec. 127(j)(2) and §25(b) create exceptions, permitting creditors to adjust finance charges as a result of the return of a payment for insufficient funds or the resolution of a dispute. However, whereas Sec. 127(j) excepts an adjustment to a finance charge as a result of the resolution of a dispute, §25(b) only excepts an adjustment if the dispute is resolved pursuant to §§12 or 13 of Regulation Z. Thus, in this instance, the Act provides creditors with a broader exception than the December Rules. (Effective Feb. 22, 2010)
- Subprime or “fee harvester” cards. New Sec. 127(n) of TILA generally corresponds to §26 of Regulation AA. §26(a) prohibits charging to the card account, during the first year, security deposits or fees for the issuance or availability of credit that total more than half the initial credit limit. §26(b)(1) goes on to bar the imposition of such fees during the first billing cycle if they in total constitute more than 25% of the initial credit limit, and §26(b)(2) requires that any additional security deposits or fees for the issuance or availability of credit must be charged to the account in equal portions over at least the five billing cycles immediately following the first billing cycle. Sec. 127(n), by contrast, applies to all fees other than late fees, over-the-limit fees, or fees for payments returned for insufficient funds. Moreover, Sec. 127(n) provides that if the terms of the account (as distinguished from actual charges levied) require payment of covered fees during the first year, in an aggregate amount exceeding 25% of the initial credit limit, then no payment of any such fees may be made from credit available under the account. (Effective Feb. 22, 2010)
The following provisions of the Act do not correspond to the December Rules.
- Over-the-limit charges. New Sec. 127(k) of TILA prohibits a creditor from charging a fee for exceeding an assigned credit limit unless the consumer has expressly elected to permit the creditor to complete transactions that would exceed the credit limit. The election may be made orally, electronically or in writing, in a form, manner and time to be prescribed by the Board. Elections may be made at any time, and notice of the right to revoke an election must be included in each periodic statement that shows an over-the-limit fee. The consumer need authorize over-the-limit transactions only when the creditor will impose fees upon such transactions. If a consumer elects to permit imposition of the fee, “an over-the-limit fee may be imposed only once during a billing cycle if the credit limit on the account is exceeded, and an over-the-limit fee, with respect to such excess credit, may be imposed only once in each of the two subsequent billing cycles,” unless the consumer has obtained an additional extension of credit in excess of such credit limit during any such subsequent cycle or reduces the outstanding balance below the credit limit as of the end of such billing cycle. (Effective Feb. 22, 2010)
- Decrease in APR. New Sec. 148 of TILA requires that, if a creditor increases an APR based on factors that include the credit risk of the consumer and market conditions, the creditor must consider changes in such factors in subsequently determining whether to reduce the APR. Specifically, the creditor must maintain reasonable methodologies to assess those factors at least every six months; must review accounts on which APRs were increased (since Jan. 1, 2009) to assess whether the factors have changed; and, if indicated by the review, must reduce the APR accordingly. If the review calls for an increase in the APR, the reasons for the increase must be stated in the notice required by Sec. 127(i) (discussed below). The Board is to issue final rules to implement the requirements of and evaluate compliance with this Section no later than Feb. 22, 2010. (Statute effective Aug. 22, 2010)
- Ability to repay. New Sec. 150 of TILA prohibits an issuer from opening a card account or increasing a credit limit on an existing account without considering the ability of the consumer to make the required payments. (Effective Feb. 22, 2010)
- Reasonable penalties. New Sec. 149 of TILA requires that the amount of any penalty fee imposed due to an omission with respect to or violation of the cardholder agreement, including late payment and over-the-limit fees, must be “reasonable” as well as “proportional” to the omission or violation. The Board, in consultation with other regulatory agencies, must issue final rules no later than Feb. 22, 2010, establishing standards of reasonableness and proportionality. The Board may also designate specific fee amounts as safe harbors. (Statute effective Aug. 22, 2010)
- Material change to payment procedures. New Sec. 164(c) of TILA prohibits the imposition of a late fee or finance charge for a late payment if the issuer has materially changed the mailing address, office or procedures for handling cardholder payments, the payment in question was made during the sixty-day period following the date such change took effect, and the change caused a material delay in the crediting of the payment. (Effective Feb. 22, 2010)
- Payments at local branches. New Sec. 127(b)(12)(C) of TILA states that, if a creditor is a financial institution that maintains branches at which payments may be made, the date a consumer makes a payment at a branch is deemed the date the payment is made. (Effective Feb. 22, 2010)
- Fees for making payments. Under new Sec. 127(l) of TILA, creditors may not charge a fee for making a payment, including by phone, unless the payment involves an expedited service by a service representative of the creditor. (Effective Feb. 22, 2010)
The following provisions of the Act generally correspond with the December Rules.
- Notice of change in terms. New Sec. 127(i) of TILA generally corresponds to §§9(c)(2) and 9(g) of Regulation Z, governing certain change in terms notices. Sec. 127(i) requires notice of any APR increase and any “significant change” (to be defined by the Board) in the terms of the cardholder agreement (including an increase in any fee or finance charge), whereas §9(c)(2) covers any changes to terms set forth in §§6(b)(3) – (5) (i.e., terms required to be disclosed at account opening, including APRs, minimum payment, late fees and the balance computation method). The statutory and regulatory provisions also are subject to different sets of exceptions. Specifically, Sec. 127(i) does not require notice of APR increases covered by Secs. 171(b)(1)-(3) (discussed above). By contrast, 9(c)(2) does not require notice, for example, of charges for documentary evidence, while 9(g) does not require notice, for example, of credit limit decreases where specified alternative notice has been provided. Both Sec. 127(i) and §§9(c)(2) and 9(g) require the provision of 45 days' notice before a covered change becomes effective. Sec. 127(i), unlike §9(c)(2) and 9(g), does not contain detailed formatting requirements. Sec. 127(i) does require, however, that each notice be made in a clear and conspicuous manner. Also, whereas under new Sec. 127(i)(3) each notice must contain a brief statement of the right of the consumer to “cancel the account” pursuant to rules to be established by the Board, §9(c)(2)(iii)(A)(3) requires creditors to disclose a right to “opt out” of the change. In addition, new Sec. 127(i)(4) states that such cancellation of an account must not trigger penalties, including accelerated payments or special fees. (Effective Aug. 22, 2009)
- “Fixed rate.” Whereas §16(f) of Regulation Z restricts the use of the term “fixed rate” in advertisements, Sec. 127(m) of TILA sets limits on the use of the phrase in credit agreements. §16(f) prohibits the use of the term unless the advertisement also specifies a time period that the APR will be fixed and will not increase during that period (or if no period is provided, the APR will not increase while the plan is open). Sec. 127(m), by contrast, permits use of the term where an APR will not change or vary over the time period that is clearly and conspicuously specified in the account terms. (Effective Feb. 22, 2010)
- Payoff timing disclosures. Amended Sec. 127(b)(11) of TILA generally corresponds to §7(b)(12) of Regulation Z, which implements the former Sec. 127(b)(11) as added to TILA by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (Pub.L. 109-8, 119 Stat. 23, enacted April 20, 2005) (the “Bankruptcy Act”). Whereas §7(b)(12) gives issuers three alternative options for making periodic statement disclosures regarding payoff timing, Sec. 127(b)(11) eliminates this optionality, mandating that creditors disclose: (i) that making only the minimum payment will increase the time required to pay off the balance and the amount of interest paid; (ii) the number of months required to pay off the outstanding balance making only minimum payments; (iii) the total cost required to pay off the outstanding balance making only minimum payments; (iv) the amount of the monthly payment required to pay off the outstanding balance in 36 months; and (v) a toll-free number for information on credit counseling and debt management. (Effective Feb. 22, 2010)
- Late payment deadlines and penalties. Amended Sec. 127(b)(12) of TILA generally corresponds to §7(b)(11) of Regulation Z, which implements the former Sec. 127(b)(12) as added to TILA by the Bankruptcy Act. Both versions of Sec. 127(b)(12), as well as §7(b)(11), require that each periodic statement disclose the upcoming payment due date (if a late-payment fee or penalty may be imposed) or, if different, the date on which a late payment fee will be charged, together with the amount of the fee. Amended Sec. 127(b)(12), however, also requires that if one or more late payments could trigger an APR increase, that fact must be disclosed along with the penalty APR. (Effective Feb. 22, 2010)
- Renewal. Amended Sec. 127(d) of TILA generally corresponds to §9(e) of Regulation Z, which regulates disclosures provided prior to renewal of a credit card. §9(e) applies to any card issuer that imposes any annual or other periodic fee to renew the card account, including any fee based on account activity or inactivity. Sec. 127(d) additionally covers card issuers that have changed or amended any term of a card account that has not been previously disclosed since the last renewal. Also, §9(e) provides an exception which Sec. 127(d) eliminates. (Effective Feb. 22, 2010)
The following provision does not correspond to the December Rules.
- Internet posting of cardholder agreements. New Sec. 122(d) of TILA requires each creditor to establish a Web site presenting all of the creditor’s existing cardholder agreements (other than workout or temporary hardship agreements). Creditors must also provide existing cardholder agreements to the Board, which will make them available on a public Web site. The Board is authorized to regulate the posting of cardholder agreements and also to create appropriate exceptions. (Effective Feb. 22, 2010)
III. Young consumers
The Act amends TILA with respect to individuals under the age of 21 as summarized below; see also part IV below regarding the Act’s amendment of FCRA prescreening provisions and part V below regarding reports on college card agreements.
- Issuance. New Sec. 127(c)(8) of TILA permits creditors to provide a card account to a person under 21 only if (i) the account application is cosigned by a person over 21 who has a means to repay the debt and assumes joint liability on the account, or (ii) the applicant has submitted financial information demonstrating an independent means to repay the proposed extension of credit. The Board is to promulgate safe harbor standards relating to option (ii). (Effective Feb. 22, 2010)
- Credit line increase. New Sec. 127(p) of TILA prohibits creditors from increasing the credit line on an account that has been co-signed for an under-21 obligor unless the parent, guardian or spouse of the obligor who is also the co-signer approves the increase in writing and assumes joint liability for it. (Effective Feb. 22, 2010)
- College marketing. New Sec. 140(f) of TILA requires institutions of higher education to publicly disclose any agreement made with an issuer for the purpose of marketing a credit card. In addition, issuers may not offer any “tangible item” to induce students to apply for or open a card account if the offer is made on or near a campus (nearness to be determined by the Board) or at an event sponsored by the institution. This provision is clearly aimed at the “tabling”-based marketing of college cards. (Effective Feb. 22, 2010)
IV. Other amendments
- TILA civil liability. For many years, TILA has defined the potential monetary exposures associated with individual and class action litigation alleging TILA violations. With respect to individual actions concerning open-end plans not secured by real property or a dwelling, the Act amends Sec. 130(a)(2)(A) of TILA to permit liability for each transaction in an amount equal to twice the finance charge, with a floor of $500 and a ceiling of $5,000 (except in the case of an established pattern or practice of violations, in which case there is no ceiling). With respect to class actions for violation of Secs. 127(a) or (b), the undesignated paragraph following Sec.130(a)(4) is amended to encompass violations of Secs. (b)(11) "through (13).” As discussed above, Sec.127(b)(11) relates to payoff timing disclosures, and Sec. 127(b)(12) relates to disclosures of late payment deadlines and penalties. (Effective Feb. 22, 2010)
Free credit reports. Under new Sec. 612(g), any advertisement for a free credit report in any medium must prominently disclose that free credit reports are available at “AnnualCreditReport.com” (or such other sources as may be authorized under federal law). In the case of an advertisement broadcast by television or radio, the corresponding disclosures must consist only of the following: “This is not the free credit report provided for by Federal law.” The Federal Trade Commission is charged with issuing final implementing regulations no later than Feb. 22, 2010, including specific wording to be used in advertisements.
Prescreened credit offers for young consumers. Amended Sec. 604(c)(1)(B) prohibits consumer reporting agencies from furnishing consumer reports for use in sending prescreened credit offers to any person under 21, unless that person has consented to the consumer reporting agency. (Effective Feb. 22, 2010)
- EFTA. New Sec. 915 expands federal law to cover “general use prepaid cards,” “gift certificates” and “store gift cards,” which it defines to exclude, among other things, any card or device that is a loyalty, award, or promotional gift card, as defined by the Board. For the cards and devices that are covered by the new law, dormancy fees are barred, subject to certain exceptions, such as twelve months of inactivity. Also, the issuance or sale of gift cards subject to expiration dates is prohibited, again subject to certain exceptions, in this case including expiration dates at least five years from the date of issuance. The Board is to prescribe regulations to carry out these provisions, and is also tasked with determining the extent to which the individual definitions of EFTA and Regulation E (Electronic Fund Transfer) should apply to general use prepaid cards, gift certificates and store gift cards. Sec. 920 also is amended to permit the Board to exempt covered cards and devices from the foregoing fee and expiry requirements within any State if the Board determines that substantially similar restrictions exist under the laws of that State and that there is adequate provision for enforcement. (Statute effective Aug. 22, 2010)
- BSA. Sec. 503 of the Act mandates that the Secretary of the Treasury, in consultation with the Secretary of Homeland Security, is to issue final regulations implementing the Bank Secrecy Act regarding the sale, issuance, redemption or international transport of stored value, including stored value cards. The regulations must take into consideration current and future needs and methodologies for transmitting and storing value in electronic form. (Effective Feb. 22, 2010)
Of the many reports mandated by the Act, the following are notable because they may trigger another round of legislative or regulatory activity or because they relate to the TILA amendments discussed above.
- Interchange fees. Sec. 501 of the Act calls for the Comptroller General (the director of the Government Accountability Office) to study interchange fees and their effects on consumers and merchants and provide a report to the House and Senate together with recommendations for legislative or regulatory actions. The Comptroller General is to consider, among other factors, the extent to which interchange fees are required to be disclosed to consumers and merchants; other jurisdictions where the central bank has regulated interchange fees; and “the costs and factors incorporated into interchange fees, such as advertising, bonus miles, and rewards.” (Report due Nov. 22, 2009)
- Consumer credit and regulations. Sec. 502 of the Act requires the Board to review the consumer credit market no later than two years after the enactment of the Act and every two years thereafter (except that the cycle re-sets following the Board’s issuance of material new regulations). The Board is to conduct these reviews within the limits of its existing resources available for reporting purposes but is also to solicit public comment. Each review is to result in proposed new regulations—or a public explanation of why this is not necessary—and a status report to Congress including any recommendations for legislation. In other words, in contrast to the upheaval of the past few years, material changes to the legislative and regulatory landscape of the card business are to become recurring events, and perhaps less dramatic ones. (Initial report due May 22, 2011)
- University affinity agreements. New Sec. 127(r) of TILA requires creditors to submit a report each year to the Board containing the terms and conditions of all business, marketing and promotional agreements and college affinity card agreements with an institution of higher education, or an alumni organization or foundation affiliated with such an institution, with respect to any college student credit card issued to a college student at that institution. The Board is then to submit to Congress, and make available to the public, an annual report aggregating this information. Under Sec. 305(b) of the Act, the Comptroller General is to periodically review the creditors’ reports, as well as their marketing practices, to determine the impact that college affinity card agreements and college student card agreements have on credit card debt. The Comptroller General is then to report to Congress and recommend legislative or administrative action as appropriate. (Initial creditor reports due Feb. 22, 2010)
- Small business credit plans. Sec. 506 of the Act calls for the Board to review the use of credit cards by businesses with not more than 50 employees as well as the credit card market for small businesses. Factors to be considered by the Board include the adequacy of disclosures for small business cards, the adequacy of protections against unfair or deceptive acts or practices, and the use of risk-based pricing. The Board is then to report to Congress and recommend legislative or administrative initiatives. In other words, the Board is to consider which, if any, of the recent changes aimed at consumer cards should be extended to small-business cards. (Report due May 22, 2010)
- Marketing products with credit offers. Sec. 509 of the Act requires the Comptroller General to study the terms, conditions, marketing and value to consumers of products marketed in conjunction with credit card offers, including debt suspension agreements, debt cancellation agreements and credit insurance products. The study is to focus on the suitability of each offer for the targeted customers; the “predatory nature of such offers”; and, specifically for debt cancellation and credit insurance products, loss rates compared to “more traditional” insurance products. The Comptroller General is to submit its report to Congress. (Report Due Dec. 31, 2010
1 References in this advisory to provisions of the Act and TILA are preceded by “Sec.,” e.g., “Sec. 171(b);” references to provisions of Regulation AA and Z are preceded by “§,” e.g., “§9(b).” The term “APR” generally is used to refer to the interest rate(s) applied to a card account. This client alert uses the terms “creditor,” “issuer,” “bank” or “financial institution” as each term is used in the applicable statute or regulation; the same convention is applied to use of the terms “consumer” and “cardholder.”