New Card, Overdraft Rules Propose Opt-Out, Reducing Available Credit, Trades Say
WASHINGTON -- Recently proposed regulations would lead to additional costs and reduced revenue to credit unions and could make credit less available to consumers
That's the preliminary analysis from the two major trade associations about the proposed rules unveiled by the NCUA and two other agencies aimed at curbing what the government sees as excessive fees for--and insufficient disclosure to--credit card users.
Officials of CUNA and NAFCU are concerned that the limits on fees and cost of disclosing additional information could drive up expenses so much that offering credit cards to some consumers wouldn't be cost effective.
"We want to be sure that our members can account for risk," said Carrie Hunt, NAFCU's senior counsel and director of regulatory affairs. "Any rules should be tailored narrowly. If the compliance costs are too high, then credit unions will cut back on some of what they offer and that hurts consumers."
One source of concern is a proposal that would require debit card holders to opt out of overdraft protection and require the card issuer to inform the consumer that they have that option.
"The opt-out is hard from a practical point of view. There's a compliance cost involved because credit unions would have to spend the printing and mailing costs to inform cardholders and most credit union members like the overdraft protection," Hunt noted.
CUNA Senior Vice President and Deputy General Counsel Mary Mitchell Dunn said that "keeping consumers informed is a good thing, but there is also a point of diminishing return."
But the Center for Responsible Lending, a research and policy organization founded by the Self Help Credit Union in North Carolina, criticized the proposed rules for not going far enough.
The proposals show "that these agencies recognize that abusive overdraft loans are a significant problem. However, they would continue to allow banks to enroll customers, who never signed up for it, into the most expensive credit program that the bank offers," said Eric Halperin, the organization's Washington director.
The proposed regulations, issued by NCUA, the Federal Reserve and the Office of Thrift Supervision, would also ban practices such as charging interest on repaid debt and not providing adequate notice of when payments are due. Also, debit card issuers would be barred from imposing an overdraft charge if the overdraft is caused solely by a hold placed on funds exceeding the purchase amount. Similarly, credit card holders wouldn't be charged for exceeding their credit limit if this only occurs because a hold was placed on their account.
Hunt also said NAFCU wants to examine the details of the proposals' provisions regarding retroactive changes in interest rates on remaining balances.
The public has 75 days to comment on the proposals, which were issued on May 2. Once the three agencies review the comments they will issue final rules.
Congress is also looking at increasing regulation of credit and debit card issuers. House Financial Services Chairman Barney Frank (D-Mass.) and Senate Banking Committee Chairman Christopher Dodd (D-Conn.) have both said they favor congressional action.
Rep. Carolyn B. Maloney (D-N.Y.), who chairs the subcommittee that oversees credit card issues, has proposed a credit card users bill of rights that bans collecting interest on amounts paid, requires timely notices of rate changes and gives cardholders the right to cancel cards if rates increase and pay off balances at the previous rates.
Dodd recently introduced a measure in the Senate that contains some of the same provisions as Maloney's bill.