ICFE eNEWS #08-25 - December 22nd 2008
New Credit Card Rules for July 2010
The final rules prohibiting certain credit card practices were adopted
under the Federal Trade Commission Act, and are being issued
concurrently with substantially similar final rules by the Office of
Thrift Supervision and the National Credit Union Administration. Among
other things, the rules will:
- Protect consumers from unexpected interest charges, including
increases in the rate during the first year after account opening and
increases in the rate charged on pre-existing credit card balances;
- Forbid banks from imposing interest charges using the "two-cycle"
- Require that consumers receive a reasonable amount of time to make
their credit card payments;
- Prohibit the use of payment allocation methods that unfairly
maximize interest charges;
- Address subprime credit cards by limiting the fees that reduce the
amount of available credit.
Highlights of Final Rules Regarding Credit Card Accounts from the
Federal Reserve Board.
Regulation AA (Unfair Acts or Practices) Final Rule
The final rule amends Regulation AA to prohibit unfair or deceptive acts
or practices by
banks in connection with credit card accounts. The effective date for
the Regulation AA
amendments is July 1, 2010.
- Time to Make Payments. The final rule prohibits banks from treating
as late for any purpose unless the bank provides a reasonable amount of
the consumer to make that payment. The rule provides a safe harbor for
that send periodic statements at least 21 days prior to the payment due
- Allocation of Payments. When different annual percentage rates
(APRs) apply to
different balances on a credit card account (for example, purchases,
transfers, cash advances), the final rule requires banks to allocate
exceeding the minimum payment to the balance with the highest rate first
rata among all of the balances.
- Increasing Interest Rates. The final rule requires banks to disclose
opening all interest rates that will apply to the account and prohibits
those rates, except in certain circumstances. First, if a rate disclosed
opening expires after a specified period of time, banks may apply an
rate that was also disclosed at account opening. Second, banks may
rate due to the operation of an index (in other words, the rate is a
Third, after the first year, banks may increase a rate for new
after complying with the 45-day advance notice requirement in Regulation
Fourth, banks may increase a rate if the minimum payment is received
30 days after the due date.
- Two-Cycle Billing. The final rule prohibits banks from calculating
a method referred to as "two-cycle billing." Under this method, when a
pays the entire account balance one month, but does not do so the
month, the bank calculates interest for the second month using the
balance for days in the previous billing cycle as well as the current
- Financing of Security Deposits and Fees. The final rule addresses
regarding subprime credit cards with high fees and low credit limits.
would be prohibited from financing security deposits and fees for credit
availability (such as account-opening fees or membership fees) if
assessed during the first 12 months would exceed 50 percent of the
limit. The rule also limits the security deposits and fees charged at
opening to 25 percent of the initial credit limit and requires any
amounts (up to 50 percent) to be spread evenly over at least the next
Regulation Z (Truth in Lending) Final Rule
The final rule amends Regulation Z to improve the effectiveness of the
consumers receive in connection with credit card accounts and other
home-secured) credit plans. The effective date for the Regulation Z
amendments is July
- Applications and solicitations. The final rule contains format and
to make the credit and charge card application and solicitation
meaningful and easier for consumers to use. These disclosures are
provided in the
form of a table that summarizes the key account terms. The changes
- Format Revisions. New format requirements for the summary table
include rules regarding type size, the use of boldface type for certain
terms, and the placement of information.
- Content Revisions. Creditors must disclose the duration that penalty
may be in effect, simplify disclosures about variable rates and revise
disclosures regarding when a grace period is offered on purchases or
no grace period is offered.
- Account-opening disclosures. The final rule enhances the cost
provided at account opening to make the information more conspicuous and
easier to read. Certain key terms must be disclosed in a summary table
opening, which is substantially similar to the table required for credit
card applications and solicitations.
- Periodic statement disclosures. The final rule contains revisions to
disclosures on periodic statements more understandable, primarily by
changes to the format requirements, such as by grouping fees and
together. The changes include:
- Interest Charges and Fees. Interest charges and fees must be grouped
separately, with a monthly total for each. Interest charges must be
itemized according to the type of transaction (such as interest charged
purchases, and interest charged on cash advances). Separate year-to-date
totals for fees and interest charges are also required.
- Effective APR. The requirement to disclose an "effective annual
percentage rate" is eliminated due to the lack of consumer understanding
of this term. New requirements to disclose interest and fee totals for
month and year-to-date should more effectively inform consumers of the
total cost of credit.
- Minimum Payment Disclosure. The effect of making only the minimum
required payment on the time to repay balances must be disclosed, as
required by the Bankruptcy Abuse Prevention and Consumer Protection
Act of 2005.
- Changes in consumer's interest rate and other account terms. The
expands the circumstances under which consumers receive written notice
changes in the account terms (such as, an increase in the interest
increases the amount of time these notices must be sent before the
becomes effective. The changes include:
- Increase in Advance Notice for Changes in Terms. The final rule
increases the amount of advance notice before a changed term can be
imposed from 15 to 45 days to better allow consumers to obtain
financing or change their account usage.
- Requiring Prior Notice for Penalty Rate Increases. Creditors must
45 days' prior notice before the creditor increases a rate due to the
consumer's delinquency or default or as a penalty.
- Summary Table. When a change-in-terms or penalty-rate notice
accompanies a periodic statement, the final rule requires creditors to
provide a tabular disclosure on the front side of the periodic statement
showing the key terms being changed.
- Additional protections. The final rule includes the following
protections for consumers:
- "Fixed" Rates. Advertisements may refer to a rate as "fixed" only if
time period is specified for which the rate is fixed and the rate will
increase for any reason during that time, or if a time period is not
specified, if the rate will not increase for any reason while the plan
- Cut-off Times and Due Dates for Mailed Payments. Creditors must set
reasonable cut-off hours for mailed payments to be considered timely on
the due date. The final rule deems 5 p.m. to be a reasonable time. When
mailed payments are not accepted on the due date, such as on weekends or
holidays, creditors must consider a payment received on the next
day as timely.
Highlights of Rules Regarding Overdraft Services
Regulation DD (Truth in Savings) Final Rule
The final rule amends Regulation DD to address depository institutions'
practices related to overdrafts. The effective date for the Regulation
DD amendments is
January 1, 2010.
- Disclosure of Aggregate Overdraft Fees. The final rule extends to
the requirement to disclose on periodic statements the aggregate dollar
charged for overdraft fees and for returned item fees (for the statement
the year-to-date). Currently, only institutions that promote or
payment of overdrafts must disclose aggregate amounts.
- Disclosure of Balance Information. The final rule requires
provide account balance information through an automated system to
balance that does not include additional funds that may be made
Regulation E (Electronic Fund Transfers) Proposed Rule
The proposal amends Regulation E to provide consumers certain
protections relating to
the assessment of overdraft fees. The proposal replaces previously
under Regulations AA and DD addressing overdraft services.
- Consumer Choice Regarding Overdraft Services. The proposal solicits
on two approaches to providing consumers a choice regarding the payment
ATM and one-time debit card overdrafts by their financial institution.
- Opt-out: Under one approach, an institution would be prohibited from
imposing an overdraft fee unless the consumer is given an initial notice
and a reasonable opportunity to opt out of the institution's overdraft
service, and the consumer does not opt out.
- Opt-in: The second approach would prohibit an institution from
an overdraft fee for paying such overdrafts unless the consumer
affirmatively consents (or opts in) to the institution's overdraft
- Debit Holds. The proposal would prohibit institutions from imposing
fee when the account is overdrawn because of a hold placed on funds in
consumer's account that exceeds the actual transaction amount. The
rule is limited to debit card transactions in which the actual
generally can be determined within a short period of time after the
authorized (for example, transactions at gas stations and
President - Executive Director
Institute of Consumer Financial Education
ICFE - Institute of
Consumer Financial Education -
customer.service@ICFE.info - 619.239.1401