Credit Card Accountability, Responsibility and Disclosure Act of 2009 NC Affordable Housing Conference November 4, 2009 John Meeks Atlanta Region Community Affairs Federal Deposit Insurance Corporation

Credit Card Act of 2009  Five Parts:  Title I – Consumer Protection  Title II – Enhanced Consumer Disclosures  Title III – Protection of Young Consumers  Title IV – Gift Cards  Title V – Miscellaneous Provisions

Credit Card Act of 2009  Amends Truth In Lending Act  Takes effect in 3 stages:  August 20, 2009  February 22, 2010  August 22, 2010  During discussion, unless otherwise noted provision takes effect 2/22/10

Title I – Consumer Protection Section 101 Protection of Credit Cardholders

Title I – Consumer Protection Section 101(a) – 9/20/09  45-day written notice of APR increase or other significant change  Notice must include statement of right to cancel before effective date of change  Closing or cancelling an account not an event of default that triggers fees or immediate payment

Title I – Consumer Protection  Section 101(b)  Prohibits retroactive interest rate or fee increases on OUTSTANDING balances and Universal Default  APR or fee increases ok only if: Initially disclosed – when and new rate A variable rate index change out of creditor control Failure to meet workout terms if new rate disclosed

Title I – Consumer Protection  Section 101(b) Due solely because minimum payment not received within 60 days after due date and a 45 day notice given that the increase will terminate if 6 months minimum payments made on time

Title I – Consumer Protection  Section 101(b)  Creditor can’t change repayment terms on outstanding balance except can provide for repayment at least as beneficial as amortization period of at least 5 years or minimum payment less than double the minimum payment before rate increase  Outstanding balance is amount due on 14 th day after date 45-day notice provided

Title I – Consumer Protection  Section 101(c)  Requires creditor that increases APR based on factors such as credit risk or market conditions to use same factors in determining rate reduction  Creditor must Have reasonable methodology to assess factors Review accounts with APR increase at least every 6 months for factor changes Reduce APR if review indicates appropriate For increases in APR, provide reasons in 45-day advance notice

Title I – Consumer Protection  Section 101(d)  Introductory and Promotional Rates  Prohibits increases in APR, fee or finance charge within 1 st year account opened except: Promotional rate disclosed at outset APR increase of variable rate not in creditor’s control Increases due to failure of workout plan Increases due to failure to make timely minimum payment within 60 days of due date

Title I – Consumer Protection Section 102 Limits in Fees and Interest Charges

Title I – Consumer Protection  Section 102(a)  Prohibits penalties for on-time payments – bans “double cycle billing” for on-time payments  Opt-In required for over-the-limit- transactions if fee imposed Election to permit not effective unless consumer receives notice about over-limit fees If permission given creditor must give notice in periodic statement that permission can be revoked Election effective until revoked – any time in writing, electronically or orally

Title I – Consumer Protection  Section 102(a)  Even if consumer opts-in, only one over the limit fee per cycle in which credit limit exceeded and then only once in subsequent two billing cycles unless: Consumer obtains additional extension of credit over the limit or Consumer reduces the outstanding balance below the credit limit as of the end of the billing cycle

Title I – Consumer Protection  Section 102(a)  Creditor can’t impose fee based on means of payment unless the payment involves an expedited service, as with same day credit for telephone payment

Title I – Consumer Protection  Section 102(b)  Penalties and fees imposed, including late payment or over-the-limit fees must be reasonable and proportional based on the omission or violation - effective 8/22/2010  By 2/22/2010 Regulators to issue rules for reasonableness based on: Cost to creditor from violation Deterrence value of future violations General conduct of cardholder Other factors deemed appropriate

Title I – Consumer Protection Section 103 – Use of Terms Clarified  Where the term “fixed” is used regarding APR or interest rate it can only be used to refer to a rate that will not change or vary for any reason over the terms specified in the account terms

Title I – Consumer Protection Section 104 Application of Card Payments

Title I – Consumer Protection  Prohibits imposing finance charges for payments received by 5:00 p.m. on due date  Payment over minimum amount must be applied to balances from highest rate to lowest rate  Late fees and finance charges prohibited if creditor makes material changes in way payments are to be made and the changes cause material delay in crediting – for 60 days following date of change

Title I – Consumer Protection Section 105 Initial Issuance of Subprime or “Fee Harvester” Cards  Prohibits payment of any fee (other than late fees, over-the-limit fees or NSF fees) for the credit made available by a card if the plan terms require the consumer to pay fees exceeding 25% of the authorized fee limit for the first year.

Title I – Consumer Protection  Section 106 – Periodic Statements 8/20/2009  Payment due date to be same date each month, or if not a business day, the next business day without penalty  Creditors must have reasonable procedures to assure periodic statements mailed or delivered at least 21 days before payment due  If there is a grace period within which a payment can be made without incurring an additional finance charge, no charge can be made unless a statement is mailed or delivered that reflects the charge at least 21 days before the payment is due

Title I – Consumer Protection  Section 108 – Ability to Repay  A creditor may not open a credit card account, or increase the limit, unless first considering the ability of the consumer to make the required payments

Title II – Enhanced Consumer Disclosures  Section 201(a) – Payoff Timing Disclosures  Enhances existing minimum payment warnings by requiring: Warning that minimum payments increase time to pay balance and interest paid Disclosing number of months to repay with only minimum payment, the total cost and monthly repayment amount to repay in 36 months Disclosing toll free number for information on approved credit counseling

Title II – Enhanced Consumer Disclosures  Section 202 – Late Payment Deadlines and Penalties  Periodic statement must include date on which a late fee will be charged and how much the fee is

Title II – Enhanced Consumer Disclosures  Section 204 – Internet Posting of Credit Card Agreements  Credit card issuer must post written agreement on an internet site, except for individually negotiated terms such as workouts

Title III – Protection of Young Consumers  Section 301 – Extension of Credit to Young Consumers  A credit card issuer cannot issue a credit card to a consumer under the age of 21 unless there is a co-signer who has the capacity to pay or the consumer submits financial information showing the ability to pay

Title III – Protection of Young Consumers  Section 302 – Protection of Young Consumers from Prescreened Offers  Prohibits consumer reporting agencies from providing a consumer report in connection with a credit or insurance transaction not initiated by a consumer less than 21 years old without the consumer’s consent.

Title III – Protection of Young Consumers  Section 303 – Issuance of Credit Cards to Certain College Students  Prohibits increasing the credit limit on any credit card held by a consumer under the age of 21 and co-signed by another individual(s), unless the co-signer(s) consents in writing.

Title III – Protection of Young Consumers Section 304 Privacy Protections for College Students

Title III – Protection of Young Consumers  Requires institutions of higher learning to publicly disclose agreements or contacts with card issuers to market credit cards to students.  Card issuers are prohibited from offering students any tangible item to induce an application if made: On campus Near the campus At an event sponsored by or related to the institution of higher learning

Title III – Protection of Young Consumers  Sense of the Congress: That any card issuer who markets a credit card on campus notify the institution of the location of the marketing That the number of location in which marketing takes place be limited That credit card and debt education be provided as a regular part of new student orientation

Title III – Protection of Young Consumers  College Affinity Credit Card Agreements Creditors must annually report, initially to the Federal Reserve Bank, details of all college affinity credit card programs with institutions of higher learning Reporting to include: detailed of marketing or promotional agreement; number of accounts covered by the agreements. FRB to aggregate data and report to Congress and public

Title IV – Gift Cards Section 401 (Amends Electronic Funds Transfer Act) General-Use Prepaid Cards, Gift Certificates, and Store Gift Cards

Title IV – Gift Cards  Defines: Dormancy Fee: fee, charge or penalty for non-use or inactivity General Use prepaid card: A card or other payment device redeemable at multiple, unaffiliated merchants, service providers or ATMs Gift certificate: an electronic promise redeemable at a single merchant or affiliated group of merchants

Title IV – Gift Cards  Defines: Store gift card: same as gift card except can be in form of plastic card or other payment mode Service fee: a periodic fee, charge or penalty for holding or use of a gift certificate, store gift card or general-use prepaid car. For a general-use prepaid card a one time issuance fee isn’t a service fee.

Title IV – Gift Cards  Prohibits dormancy fee, inactivity charge or fee or service fee unless no activity for 12 months, required disclosures met and no more than one fee per months  Disclosure is met if it clearly state the charge or fee that may be imposed, the amount of the charge, frequency of the charge, and inactivity fee amount  Expiration dates of less than 5 years prohibited and expiration date information must be clearly stated

Title V – Miscellaneous Provisions  Section 502  Beginning two years after enactment the FRB will conduct a biennial review of consumer credit card marketing, including practices, disclosures, fees, cost of credit to non-prime borrowers among others.  FRB will report findings to Congress and consider regulatory changes as necessary

Title V – Miscellaneous Provisions  Section 505  Beginning one year after enactment the FRB, in consultation with other regulators, will report to Congress the extent to which card issuers, in the three years prior to enactment, increased rates or reduced credit limits based on geographical location, type or amount of transaction and the identity of the mortgage creditor to which the cardholder owes a debt secured by the cardholder’s primary residence.

Title V – Miscellaneous Provisions  Section 509  The Comptroller General is required to conduct a study on terms, conditions, marketing, and value to consumers of products marketed in conjunction with credit card offers, including debt suspension and cancellation agreements and credit insurance products.  Will look at suitability of products, predatory nature of offers, loss rates compared to traditional products.

Title V – Miscellaneous Provisions  Section 510  By 2/2210 the Sec. of Education and Dir. Of Office of Financial Education of the Dept of Treasury to coordinate with the President’s Advisory Council on Financial Literacy to evaluate and compile a comprehensive list of Federal financial education programs, and develop a strategic plan to improve and expand financial education.

Resources Section by section summary: Google Credit Card Accountability Responsibility Act [PDF] The Credit Card Accountability Responsibility and Disclosure Act...The Credit Card Accountability Responsibility and Disclosure Act... –File Format: PDF/Adobe Acrobat - Quick View The Credit Card Accountability Responsibility and Disclosure Act of Section by Section Summary. Sec. 1. Short Title. Sec. 2. Regulatory Authority... banking.senate.gov/public/index.cfm?FuseAction=Files...id...Quick View –PDF]

Resources Full Act: billtext.epd?bill=h