In the May issue of Basis Points, we reported on the new credit card rules. The ink barely dried on that issue before we learned that those new rules needed “clarification.” To recap, the Federal Reserve Board, the Office of Thrift Supervision and the National Credit Union Administration recently issued final rules effective July 1, 2010, that significantly change the disclosures given in connection with credit card accounts and impose substantive limitations on such accounts.
Less than four months after the agencies published the final rules, and about one year before the effective date for implementation, the agencies have already re-thought some of these new requirements. In late April, the agencies announced proposed changes to clarify issues brought to their attention by various parties. The agencies published the proposals on May 5, and provide a short window for comment, as the comment period closes on June 4. Thus, creditors have a limited timeframe during which to air their concerns.
The agencies have limited the scope of the items open for comment. The proposals state that “the purpose of this rulemaking is to clarify and facilitate compliance with the consumer protections contained in the final rules, not to reconsider the need for – or the extent of – those protections.” Thus, the proposals primarily focus on technical changes and clarifications. The agencies do not intend to reopen all of the rules for comment, nor have they created new obligations outside of those already passed in the final rules.
So what changes do the agencies propose?
One important item “clarified” deals with balance transfers. The proposals make it clear that the protections provided to consumers in the final rules apply to balances transferred to another account with the same institution, as well as balances on accounts either closed or acquired by another institution. Creditors offering a temporary reduction in an interest rate must provide a rate change notice in the format and within the time required by the subsequent disclosure requirements before resuming the original rate. In addition, the proposals provide an exception to the subsequent notice requirement for rate increases for temporary hardship arrangements, where the consumer successfully cures a delinquency according to the terms of the hardship arrangement, and the institution then raises the rate from the temporary rate to the rate that applied prior to commencement of the temporary arrangement.
The agencies also backed away from categorically prohibiting deferred interest card programs. Recognizing that these programs can offer benefits to consumers, the new proposals would allow creditors to continue to offer deferred interest and similar programs, but would require those who offer such programs to give enhanced disclosures to consumers. The enhancements should help avoid any surprise to the consumer by making it clear that creditors will assess deferred interest if the consumer fails to pay balances by a certain date. The agencies have also added new protections, including a prohibition on assessing interest charges before the expiration of the deferral period because of defaults on other accounts (commonly known as universal default).
We will continue to track the proposals and will update the status of the proposals in coming editions of Basis Points.
Dan Laudicina is a partner in the Maryland office of Hudson Cook, LLP. Basis Points readers can reach Dan at 410.865.5435 or by email at dlaudicina@hudco.com.