On May 22, 2009, President Obama signed the Credit Card Accountability Responsibility and Disclosure Act of 2009 into law. Since then, we’ve been contacted by several legislators with questions from constituents about the Act and what it does. The Act is a sweeping change for the card industry and will impact all issuers, including Capital One. It will require significant changes to credit card industry policies and practices. Coupled with the rule changes announced by the Federal Reserve Board earlier this year and those that will be necessary to implement this law, these new requirements will touch all aspects of Capital One’s card business.
The Act amends a number of Federal laws such as the Truth-In-Lending Act (TILA), the Fair Credit Reporting Act (FCRA), and the Electronic Funds Transfer Act (EFTA). While the Act also has provisions affecting credit reports, prepaid / gift cards, mortgages, and authorizes several studies, the following is a summary of the provisions specifically relating to credit cards to assist you and your constituents. The intent and applicability of many of these provisions are not fully explained within the law itself. The Federal Reserve must still write new rules interpreting and clarifying each of these provisions before they become effective. Unless otherwise noted, the effective date of each provision is February 22, 2010.
A. Advance Notice Required for Changes in Terms: 45-days advance notice will be required prior to increasing APRs and making other significant changes to a consumer credit card account. Some exceptions apply and customers have the right to cancel the card before the effective date of the change without being required to immediately repay the balance in full. (Eff. 8/20/09)
B. First Year Increases Prohibited: No increases to APRs, fees or finance charges may become effective within the first year of an account. The only exceptions are increases related to the conditions described in section D below.
C. Repayment of Protected Balances: Protected balances are defined as amounts owed as of the end of the 14th day after a change in terms has been sent. This provision defines what portion of a balance remains under original terms, and which portion will have new terms applied.
D. Limits on APR and Fee Increases on Existing Balances: In general, increased account terms can only be applied to new transactions. Higher interest rates or fees can only be applied to existing balances on a consumer credit card account when the increase is part of a disclosed variable rate plan, promotional rate plan, collections workout/temporary hardship arrangement, or the rate is increased as a result of the account being at least 60 days past due. However, if an account’s rate is increased for being 60 days late, then the account must be returned to the lower rate after 6 months of on-time payments.
E. Required Reviews and Adjustments to APRs After Increases: Consumer credit card APRs increased since January 1, 2009 must be evaluated for potential decreases. Banks must evaluate rates at least once every 6 months using reasonable methodologies for assessing changes in the factors used to increase the rate and lower rates if justified. (Eff. 8/22/10)
F. Fixed APRs: When the APR on a consumer credit card account is marked or disclosed as “fixed” it can not be changed for any reason during the time period (if any) specified as fixed.
G. Promotional APRs: Introductory and temporarily reduced rate periods must be at least 6 months long, subject to any exceptions the Federal Reserve may allow.
H. Over-the-limit Fees: Banks cannot assess over-the-limit fees on a consumer credit card account unless a consumer has expressly elected (opted-in) to permit the bank to authorize transactions in excess of the credit limit. Any periodic statements reflecting an over-the-limit fee must include a disclosure that the customer can revoke the opt-in. A maximum of one over-the-limit fee can be imposed per billing cycle that an account is above the credit limit. However, an account that goes and remains over limit without obtaining any additional extensions of credit may only be charged a fee for up to 3 consecutive billing cycles.
I. Pay-to-Pay Fees: No fees can be charged for accepting or processing consumer credit card payments by mail, electronic transfer, telephone, or other means except in the event of an expedited payment handled by a service representative.
J. Penalty Fees: Penalty fees assessed on consumer credit card accounts for failure to pay on time, exceeding the credit limit and other violations must be “reasonable and proportional” to the violation. (Effective 8/22/10)
K. Higher Fee/Cost of Credit Cards: Fees (other than penalty fees) that exceed 25% of the initial credit line cannot be charged to a consumer credit card account during the first year.
L. Payments: Payments for open-end consumer credit accounts received by 5 p.m. on the date such payment is due in the location specified are considered timely. No late fees may be charged for consumer credit card accounts if material changes to mailing addresses or procedures for handling payments caused a material delay in crediting payments made during the 60 days following such change. Due dates for payments for consumer credit card accounts must be the same day each month. Payments received above the minimum requested for consumer credit card accounts must be applied to the highest rate balance first and then to other balances in descending order.
M. Periodic Statements: To be able to treat consumer open-end credit payments as late or charge interest for failure to pay before the end of the grace period, banks must send periodic statements no later than 21 days before such dates. (Effective 8/20/09) Periodic statements must include a “Minimum Payment Warning” to consumer together with the following repayment information: number of months it will take to repay the balance by making only the minimum payment, total cost to repay the balance by making only the minimum payment, monthly payment amount required to repay the balance within 36 months, total cost if balance repaid within 36 months, and a toll-free number for accessing credit counseling and debt management services.
N. Double-Cycle Billing: For consumer credit card accounts, banks cannot charge interest for loss of grace on balances in the preceding billing cycle (i.e., no double-cycle billing), and may not charge interest on any portion of the account balance repaid in the current cycle, if the preceding cycle balance was paid in full.
O. Consideration of Ability to Repay: No consumer credit card account may be opened nor can its credit line be increased unless a bank considers the customer’s ability to make the required payments under the account.
P. Credit Cards for Individuals Under 21: Banks can only issue or open credit cards to consumers under the age of 21 if there is a co-signer who is older than 21 or the consumer submits financial information showing an independent means of repaying. Credit line increases may only be granted with the consent of any co-signer on the account.
Q. College Card Marketing: Higher education institutions must publicly disclose any agreements with banks to market credit cards. Banks cannot offer any tangible item to students as an inducement to apply for or “participate in” such card on or near the campus or at an event sponsored or related to the institution.
R. Renewal Disclosures: At card renewal, bank must disclose any changes not yet disclosed.
S. Customer Agreements: Banks must post credit card agreements for each consumer credit card account on their Internet sites and provide copies of such agreements to the Federal Reserve. The Federal Reserve must publish all credit card agreements on its own Internet site.
T. Estates: Banks are required to have procedures ensuring administrators for the estates of deceased consumer credit card customers can resolve outstanding balances in a timely manner.