Comment Period Closes on Credit Card and Overdraft Rules
The comment period has closed for the Federal Reserve's sweeping proposed rule changes for credit cards and overdrafts. The proposed revisions to Regulation AA, revisions to Regulation DD, and revisions to Regulation Z seek to redefine "unfair or deceptive acts or practices" in connection with credit card accounts and overdraft protection services.
The Federal Reserve reports receiving an unprecedented number of comments on these proposed regulations. The Fed received nearly 50,000 comments on the proposed revisions to Regulation AA alone. On a parallel track, the "Credit Cardholders Bill of Rights Act of 2008" (H.R. 5244), which would amend Truth in Lending Act to include new restrictions on billing and practices related to credit cards, is moving to the floor of the House.
Fed Issues Revised Consumer Compliance Handbook
The Federal Reserve's Division of Consumer and Community Affairs released its updated and revised Consumer Compliance Handbook. The Handbook, intended to provide comprehensive background information on federal consumer compliance statutes and regulations to Federal Reserve examiners, is a critical resource for compliance personnel at any financial institution. The Handbook contains comprehensive resources and background information regarding regulations and statutes on deposits, credit, fair lending, the Community Reinvestment Act, and other applicable laws.
Fed Issues Final Version of New Mortgage Rule
After several months of comments on the proposed rule released in December 2007, the Fed approved a final rule amending Regulation Z. In a press release and related rule highlights, the Fed summarized the new rule which, among other things, restricts certain mortgage lending practices defined as "unfair, abusive or deceptive," requires additional notices to mortgage borrowers, and imposes additional restrictions on mortgage lenders' advertising.
The new rule, most provisions of which will be effective October 1, 2009, creates a new category of mortgage loans called "higher-priced loans" (determined by reference to an index published by the Fed) to target subprime mortgages. The rule also contains additional regulations applicable to all mortgages.
Specifically, for mortgages in the category of "higher-priced loans," the rule provides:
The new rule, most provisions of which will be effective October 1, 2009, creates a new category of mortgage loans called "higher-priced loans" (determined by reference to an index published by the Fed) to target subprime mortgages. The rule also contains additional regulations applicable to all mortgages.
Specifically, for mortgages in the category of "higher-priced loans," the rule provides:
- lenders must assess a borrower's ability to repay the loan from income and assets other than the home's value, taking into account the highest scheduled payment in the first seven years of the loan;
- lenders must not rely on unverified income or assets to determine repayment ability;
- lenders must not impose prepayment penalties if the loan payment can change in the first four years of the loan, and prepayment penalties are limited to two years; and
- lenders must establish an escrow account for taxes and insurance for first-lien loans.
- lenders must credit a payment the date it is received, must provide a payoff statement within a reasonable time, and must not capitalize late fees;
- lenders and brokers must not coerce an appraiser to misrepresent the value of a home; and
- lenders must provide a good faith estimate of loan costs, including a schedule of payments, within 3 days of an application.
Fed's Credit Card and Overdraft Rules in Comment Period
The comment period for the Federal Reserve's sweeping proposed rule changes for credit cards and overdrafts continues, following the Fed's press release announcing the proposed revisions on May 2, 2008. The proposed revisions to Regulation AA, revisions to Regulation DD, and revisions to Regulation Z seek to redefine "unfair or deceptive acts or practices" in connection with credit card accounts and overdraft protection services.
The proposed changes would significantly alter the current regulations governing card issuers' payment billing cycles, allocation of payments, interest rate increases, security deposits and fees, credit card holds, and firm offers of credit. The revised rules would also make significant changes to overdraft protection linked to deposit accounts, including imposing an opt-out provision, eliminating overdraft charges resulting from debit holds, and changing required overdraft fee disclosures.
The American Bankers Association issued a public comment on the proposed rule changes on May 2, 2008, citing its concerns about a resulting "reduction in credit availability at the very time the Fed is working to increase access to credit in the marketplace."
The proposed changes would significantly alter the current regulations governing card issuers' payment billing cycles, allocation of payments, interest rate increases, security deposits and fees, credit card holds, and firm offers of credit. The revised rules would also make significant changes to overdraft protection linked to deposit accounts, including imposing an opt-out provision, eliminating overdraft charges resulting from debit holds, and changing required overdraft fee disclosures.
The American Bankers Association issued a public comment on the proposed rule changes on May 2, 2008, citing its concerns about a resulting "reduction in credit availability at the very time the Fed is working to increase access to credit in the marketplace."
