Fed Proposes New Interest Rate and Fee Rule
The Federal Reserve yesterday announced that it has issued a new proposed rule amending Regulation Z to change regulations regarding late payments and penalty fees charged by credit card issuers and to require card issuers to reconsider increases in interest rates. The new rule comes on the heels of the recent effective date of Regulation Z amendments implementing the Credit CARD Act.
Among other things, the proposed rule announced yesterday would:
- Prohibit credit card issuers from charging penalty fees (including late payment fees and fees for exceeding the credit limit) that exceed the dollar amount associated with the consumer's violation of the account terms. For example, card issuers would no longer be permitted to charge a $39 fee when a consumer is late making a $20 minimum payment. Instead, the fee could not exceed $20.
- Ban inactivity fees, such as fees based on the consumer's failure to use the account to make new purchases.
- Prevent issuers from charging multiple penalty fees based on a single late payment or other violation of the account terms.
- Require credit card issuers to inform consumers of the reasons for increases in rates.
- Require issuers that have increased rates since January 1, 2009 to evaluate whether the reasons for the increase have changed and, if appropriate, to reduce the rate.
The 30-day comment period for the proposed rule will begin when the proposed rule is published in the Federal Register.
Rules Implementing the Credit CARD Act Effective Today
Among other things, the final rules will:
- limit the application of increased rates to existing credit card balances.
- require credit card issuers to consider a consumer’s ability to make the required payments.
- establish special requirements for extensions of credit to consumers who are under the age of 21.
- limit the assessment of fees for exceeding the credit limit on a credit card account.
Last week, the Federal Reserve announced a Credit Card website to help consumers better understand the credit card rules that take effect today. Two interactive features on the site enable consumers to learn more about credit-card offers’ terms and fees and about the new features on monthly statements. The Fed has also posted a summary of the rule changes for consumers.
Fed Issues Final Credit Card Rule
The Federal Reserve has issued its final rules amending Regulation Z, which implements the Truth in Lending Act, pursuant to the Credit CARD Act of 2009. Previous legislative efforts to expedite the effective date of the CARD Act resulted in no changes.
Among other things, the final rule, effective February 22, 2010, will:
• limit the application of increased rates to existing credit card balances;
• require credit card issuers to consider a consumer’s ability to make the required payments;
• establish special requirements for extensions of credit to consumers who are under the age of 21; and
• limit the assessment of fees for exceeding the credit limit on a credit card account.
The Fed has posted a summary of the rule changes for consumers.
Fed Issues Final New Credit Card Rules
The Federal Reserve yesterday issued a press release and highlights detailing its final rules revising regulation AA, revising regulation DD, and revising regulation Z. The new rules 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 new rules 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 revised regulation AA and regulation Z take effect on July 1, 2010. The revised regulation DD takes effect on January 1, 2010. Separately, the Fed seeks public comment on proposed amendments to Regulation E governing electronic funds transfers.
The Office of Thrift Supervision also announced and detailed the similar new rules for its regulated entities, as did the National Credit Union Administration.
Fed Seeks Public Comment on MDIA TILA Revisions
Last week, the Federal Reserve released its latest proposed revisions to Regulation Z, the Truth In Lending Act, to implement the July 2008 Mortgage Disclosure Improvement Act ("MDIA"), enacted as part of the Housing and Economic Recovery Act of 2008. The comment period for the proposed rule closes on January 23, 2009.
Among other things, the proposed rule implements the MDIA's requirements that lenders give good faith estimates within three business days of receiving an application for a mortgage and before collecting any fees, other than credit report fees. The MDIA broadens the Fed's July 2008 final rule by extending these requirements to homes other than a borrower's principal dwelling. The proposed rule also requires lenders to wait seven days to close a loan after providing the disclosures. The proposed rule also requires new disclosures of a revised annual percentage rate, and to wait three days before closing the loan if the APR changes in the interim beyond a minimum amount.
The proposed rule would become effective on July 30, 2009.
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
Fed Issues Final Version of New Mortgage Rule
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 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."
