The Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit CARD
Act) was enacted to ensure fair treatment of consumers and transparent practices
relating to the extension of credit under open-end consumer credit accounts,
including credit cards. It amends the Truth in Lending Act (TILA) and several other
statutes and gives responsibility to the Board of Governors of the Federal Reserve
System (FRB) to promulgate regulations.
The Credit CARD Act's amendments to TILA take effect in three stages. The interim
final rule adopted by the FRB on July 15, 2009 (available at http://www.federalreserve.gov/newsevents/press/bcreg/20090715a.htm,
implements the provisions of the Credit CARD Act that take effect on August 20,
2009. The FRB will issue separately regulations to implement the provisions that
take effect on February 22, 2010, and August 22, 2010.
The FDIC expects that card issuers it supervises have begun planning for compliance
with the Credit CARD Act's requirements. This Financial Institution Letter is
intended to highlight the most immediate compliance requirements, including ensuring
that all institutions that offer open-end credit are aware of the "time to pay"
rules.
The FDIC is focused on enforcing compliance with these and other provisions of law,
including taking appropriate action to address practices that are or may be unfair
or deceptive in violation of Section 5 of the Federal Trade Commission Act.
A summary of the Credit CARD Act's key provisions with immediate impact on credit
card issuers follows:
Interest Rate Reduction. Section 101(c) of the Credit CARD Act adds Section
148 to TILA. The Section establishes new requirements for changes in interest rates
on credit cards under open-end consumer credit plans. Any interest rate increases
that have occurred – or will occur – since January 1, 2009, will be
subject to a mandatory "look back" review at least once every six months, beginning
15 months after enactment. Using a "reasonable methodology," creditors will be
required to assess the same risk factors used to justify an interest rate increase
in determining whether a corresponding decrease in the interest rate is justified.
The FRB is required to issue final rules within nine months after enactment to
implement the requirements of and evaluate compliance with the new Section 148.
Institutions should note that although the specific repricing provisions have not
taken effect, the FDIC expects institutions it supervises to demonstrate regular
meaningful progress in preparing for full compliance with these new restrictions and
requirements. The FDIC urges institutions to ensure they adopt reasonable
methodologies for determining rate changes as well as adequate procedures to review
accounts.
Changes Effective on August 20, 2009 (90 Days After
Enactment)
1. Advance Notice of Rate Increase and Other Changes Required: Section
101(a) of the Credit CARD Act amends Section 127 of TILA to add a subsection that
will require a creditor to provide at least 45 days advance written notice of:
(a) an increase in any APR other than:
- a properly disclosed introductory rate;
- in the case of a variable rate, a change in the index; or
- the cardholder's failure to comply with the terms of a workout agreement; or
(b) other significant changes in the terms of the agreement (such as increases
in fees or finance charges).
2. Notice of Right to Cancel: The 45-day advance notice described above must
be clear and conspicuous and contain a statement of the consumer's right to cancel
the account before the effective date of the change. The FRB is drafting rules to
implement this section. Creditors should be aware that exercising the right to close
or cancel an account by a consumer cannot be deemed to be an event of default and
cannot trigger the imposition of any other penalty or fee. It also cannot trigger an
immediate obligation to pay the outstanding balance in full or through a method that
is less beneficial than either:
(a) a five-year amortization period, beginning on the effective date of the
increase; or
(b) a required minimum periodic payment that includes a percentage of the
outstanding balance equal to no more than twice the percentage required on the
date on which the creditor was notified of the rejection.
3. Time to Pay: Section 106(b) of the Credit CARD Act amends TILA to
prohibit a creditor from treating a payment on an open-end consumer credit plan as
late for any purpose unless the creditor has adopted reasonable procedures designed
to ensure periodic statements are mailed or delivered no later than 21 days before
the payment due date.
Special rules for accounts with grace periods. If a creditor offers a grace
period (a period within which consumers may repay an outstanding balance without
incurring any additional finance charge), any additional finance charge(s) may not
be imposed unless the creditor mails or delivers a statement reflecting the
charge(s) at least 21 days before the payment is due to avoid that finance charge.
