Federal Regulators Approve New Credit Card Rules That Take Effect in 2010
Under the new rule, which takes effect in 2010, credit card issuers must apply payments to the highest outstanding balance if a cardholder has more than one balance. Credit card issuers can't increase the rate within the first year unless it was disclosed when the customer received the credit card or unless the consumer makes a late payment. A credit union must give 45-days notice of any subsequent rate increases.
On subprime credit cards-those aimed at people with low credit scores-card issuers can't assess fees totaling more than 50% of the credit limit during the first year.
The NCUA's rule applies to federal credit unions only. In this instance, state-chartered credit unions fall under the oversight of the Federal Trade Commission
The rules, issued by the NCUA, the Federal Reserve and the Office of Thrift Supervision, allow FCUs to continue to offer multifeatured, open-end lending, which enable members to access a number of features in many ways, including over the phone and via the Internet.
Credit unions are allowed to underwrite every advance a member makes to ensure the member still is creditworthy as long as the plan as a whole is self-replenishing-in other words, as long as member can borrow money, repay it and borrow again under the plan as a whole.
"It sends a strong, positive message that credit unions still have options in using multifeatured, open-end lending," said Bill Klewin, associate general counsel for CUNA Mutual.
NAFCU President/CEO Fred Becker said his organization has always favored credit card policies that strike a balance. "As member-owned, nonprofit institutions, credit unions have a solid history of promoting fair and equitable practices in their financial services. While we staunchly support measures to correct deceptive and unscrupulous practices, we want to make sure that consumer protection is balanced with credit unions' continued opportunity to offer affordable credit to their members," he said.
The final rules about a major source of concern for credit unions-what options they must give their members in terms of overdraft protections-are still in flux. The Federal Reserve approved rules on the disclosure of overdraft fees that only apply to banks and the NCUA is expected to issue similar rules in the next few months.
The Fed's rules (Regulation DD) require all banks to disclose on their statements the aggregate dollar amounts charged for overdraft fees and for returned items for both the statement period and the year-to-date. Currently, only institutions that promote or advertise the use of overdrafts are required to disclose aggregate amounts.
Financial institutions that give account balance information through an automated system must provide a balance that does not include additional funds that may be made available to cover overdrafts.
The Fed has issued proposed rules on electronic fund transfers (Regulation E) that solicit comments on two approaches to providing consumers a choice on ATM and debit card overdrafts. These would apply to credit unions, and there will be a 60-day comment period once the rules are published.
Under one approach a credit union would be banned from imposing overdraft fees unless consumers are given notice and a "reasonable opportunity" to opt-out of the institution's overdraft service.
Under the other approach, a credit union would prohibit an institution from imposing an overdraft fee for paying for these overdrafts unless the member affirmatively consents (or opts in) to the overdraft service.
The proposal would also ban credit unions from imposing an overdraft fee when the account is overdrawn because of a hold placed on funds in the consumer's account that exceed the transaction amount.
This proposal was originally included in the regulations that the Fed was planning to approve last month, but many financial institutions and their trade associations expressed concern that the compliance costs would be prohibitive.
"Currently, most credit unions do not have the operational and/or technological capability to separate out the processing codes in order to pay overdrafts for some, but not all, payment channels," NAFCU Senior Vice President of Government Affairs B. Dan Berger wrote the Fed last summer.
As a result, the Fed separated the rules out for an additional comment period.