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Inactive Financial
Institution Letters
Regulation Z -
Open-End Consumer Credit Changes Notice of Statutory Amendment; Additional
Guidance
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FIL-74-2009 December 23, 2009
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Summary:
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On November 6, 2009, President Obama signed the Credit CARD Technical Corrections Act
of 2009, which narrowed the scope of application of the Credit CARD Act's requirement
that creditors mail or deliver periodic statements at least 21 days before the payment
due date to credit card accounts only. Previously, this requirement applied to all forms
of open-end credit, including home equity lines of credit. This Financial Institution
Letter (FIL) updates the information provided in FIL-44-2009, "Regulation Z –
Open-End Credit Changes," by notifying bankers of this statutory change and providing
additional guidance on how to provide the required advance notice of change(s) in
interest rates or other significant terms.
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Highlights:
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The Credit CARD Technical Corrections Act, signed into law on November 6, 2009,
amended section 106(b) of the Credit CARD Act and, by reference, the amendments
to Regulation Z issued by the Federal Reserve Board (FRB), effective August 20,
2009. The rule originally required creditors to mail or deliver periodic
statements at least 21 days before the payment is due for
all open-end credit plans. As revised, the 21-day
periodic statement requirement is now limited to credit card accounts
only, effective immediately.
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As highlighted in FIL-44-2009, the Credit CARD Act requires creditors to give 45
days' advance notice of increases in the annual percentage rate (APR) or other
significant terms of a credit card account. To implement this requirement, the
FRB exercised its interpretive authority to permit a creditor to apply the
change or increase to transactions occurring more than 14 days after the 45-day
advance notice is sent. The rule does not require the notice to explain how and
when the new rates or terms will take effect.
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Because the interplay between the 14-day and 45-day periods may catch some
customers by surprise, and to prevent customer confusion, the FDIC encourages
institutions to provide an additional statement in the 45-day notice to clarify
that, whether or not a consumer accepts or rejects an interest rate increase or
other significant change, the changed terms will automatically apply to
transactions that occur more than 14 days after the notice has been provided
(i.e., sent). This is intended to give consumers enough time to adjust their use
of the credit card following receipt of the notice.
Continuation of FIL-74-2009
Distribution:
FDIC-Supervised Banks (Commercial and Savings)
Suggested
Routing:
Chief Executive Officers
Chief Lending Officers
Compliance Officers
Related
Topics:
Truth in Lending
Federal Trade Commission Act
Contact:
Deirdre Foley, Senior Policy Analyst, Compliance Policy Section, at dfoley@fdic.gov or (202) 898-6612; or Denise
Beiswanger, Review Examiner, Compliance Examination Section, at dbeiswanger@fdic.gov
or (605) 333-2051 x8620
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Note:
FDIC financial institution letters (FILs) may be accessed from the FDIC's Web site
at www.fdic.gov/news/news/financial/2009/index.html.
To receive FILs electronically, please visit http://www.fdic.gov/about/subscriptions/fil.html.
Paper copies of FDIC financial institution letters may be obtained through the
FDIC's Public Information Center, 3501 Fairfax Drive, E-1002, Arlington, VA 22226
(1-877-275-3342 or 703-562-2200).
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Financial Institution
Letters
FIL-74-2009
December 23, 2009
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Regulation Z
- Open-end Consumer Credit Changes
Notice of
Statutory Amendment; Additional Guidance
Statutory Amendment
The Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit CARD
Act) established new disclosure requirements and substantive limits on certain
practices relating to open-end consumer credit plans. The Credit CARD Act provisions
are taking effect in stages between August 2009 and August 2010. Rules concerning
periodic statements and advance notice of significant changes in terms took effect
on August 20, 2009, and were implemented by the Federal Reserve Board (FRB) through
an interim final regulation published on July 22, 2009. 74 Fed. Reg. 36077 (July 22,
2009), available at http://edocket.access.gpo.gov/2009/pdf/E9-17195.pdf
. In addition, proposed regulations relating to interest rate increases,
over-the-limit transactions, and student cards, effective February 22, 2010, were
published in the Federal Register on October 21, 2009. 74 Fed. Reg. 54124,
available at http://edocket.access.gpo.gov/2009/pdf/E9-23733.pdf.
The FDIC issued FIL-44-2009, "Regulation Z, Open-End Consumer Credit Changes," on
August 6, 2009, to provide bankers with notice of these provisions, and to provide
information on other sections of the law that are not effective, but which have
immediate impact. This Financial Institution Letter (FIL) updates FIL-44-2009 to
provide notice of the recent statutory change regarding periodic statements
discussed above, as well as guidance on additional recommended disclosures for the
45 day advance notice of interest rate increases or other significant changes in
terms.
21-Day Periodic Statement Now Required For Credit Card Accounts Only −
On November 6, 2009, President Obama signed the Credit CARD Technical Corrections
Act of 2009. This statute amends section 163(a) of the Truth in Lending Act to
narrow the scope of application of the new requirement added by the Credit CARD Act
that creditors mail or deliver periodic statements at least 21 days before the
payment due date to apply only to credit card accounts, as opposed to all open-end
credit plans. The FDIC anticipates that the FRB will further revise Regulation Z,
Section 226.5(b)(2), which implemented the 21-day billing rule, to conform with this
change.
Additional Guidance
Advance Notice of Interest Rate Increases or Other Significant Changes in Account
Terms – For open-end (not home-secured) consumer credit card
accounts, the interim final rule requires that creditors provide consumers with 45
days' advance notice of interest rate increases or other significant changes in
account terms, including when the increase or change is the result of a delinquency
or default, or as a penalty for other actions specified in the account agreement.
See 12 C.F.R. 226.9(c)(2)(i); (g)(3).1 Pursuant to the Credit CARD Act, Regulation Z
now provides consumers with a right to reject such changes, unless the consumer
fails to make the required minimum periodic payment within 60 days of the due date
for that payment. If a consumer exercises his or her right to reject changes in rate
or other terms, special protections apply. The protections include a prohibition on
(1) applying the change or increase to the consumer's existing account balance, (2)
imposing fees or treating the account as in default solely as a result of the
consumer's rejection of the change, or (3) requiring repayment of the outstanding
balance using a method that is less beneficial than either (a) the repayment method
in effect on the date the creditor received notice of the rejection by the consumer,
or (b) an amortization period of not less than five years.
Recommended Additional Disclosures for the 45 Days' Advance Notice −
To implement the advance notice requirements of the Credit CARD Act, the FRB
exercised its interpretive authority under TILA to apply the increased rate or other
change to transactions occurring more than 14 days after the creditor sends
(delivers) a notice. 12 C.F.R. 226.9(h)(3)(ii). The FRB's interim final rule also
does not require creditors to explain in clear terms that the 45-day advance notice
to consumers that the new terms will be applied to transactions occurring more than
14 days after the 45-day notice is provided. In other words, the only way for a
consumer to avoid paying the increased rate (or avoid application of the other
significant change) during days 15 through 45 of the required notice period is for
the consumer to fully repay those charges before the effective date of the change on
day 45.
Because the operation of the interim final rule has the potential to surprise
consumers and without sufficient time to change their account usage, and until this
issue is clarified by the FRB's ongoing rulemaking process, the FDIC recommends that
when creditors apply changes or increases to future transactions, the 45 days'
advance notice should include a statement to alert the consumer to the imposition of
the new terms on transactions occurring more than 14 days after the notice is
provided. This statement should explain that, regardless of whether a consumer
accepts or rejects a change or increase, the change will apply to transactions
occurring more than 14 days after the notice has been provided, and the notice
should specify this date. For example, the statement might read: "Whether or not you
reject this change in terms, the new terms will apply to any transactions you
initiate after [month/day/year]." This statement should be included with other
information required to be provided in the notice.
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Sandra L. Thompson
Director
Division of Supervision and Consumer Protection
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1 Other provisions of the Credit CARD
Act may impact the content of change-in-terms notice and the types of changes that
are permitted, which are not effective until February 22, 2010. Additional rules and
guidance will be issued to address those provisions.
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