New Credit Card Law Puts the Focus and Pressure on Processors
While the recently signed Credit Card Accountability, Responsibility and Disclosure Act of 2009 focuses heavily on the business practices of bank card issuers, it also covers credit unions. And much of the burden of helping credit unions comply with the new law will fall on their card processors.
"It has definitely been a very busy time, but we are moving forward to handle it," said Barbara Hunter, vice president of card services with Fidelity National Information Services.
Hunter explained that FIS is already gearing up to make many of the changes the law requires because those changes had been previously mandated by federal regulation. But even with the head start, Hunter said, the processor is launching a significant communications effort to let its credit unions know about the changes and how FIS can help them implement those changes.
Hunter and Rachel Templen, an FIS executive serving as project manager in the effort to help credit unions comply with the new law, divided the processor's efforts into the compliance tasks that credit unions will have to address and the changes that FIS will have to make to its processing platform to accommodate the law.
An example of the changes credit unions will have to address on their own includes operating a Web site that will include card disclosure statements. "Many credit unions already have these, but many don't yet," Templen said.
Examples of the types of things that FIS and other card processors have to handle include making sure cardholders' payments are properly applied. Processors will also have to ensure that cardholder statements carry the wealth of different disclosures mandated by the law.
Issuers will need to display on periodic statements how long it would take to pay off the existing balance-and the total interest cost-if the consumer pays only the minimum due each month. They will also have to display the payment amount and total interest cost to pay off the existing balance in 36 months. All this, Templen pointed out, needs to be calculated and printed on each monthly statement.
Templen and Hunter said most of their credit unions already have grace periods that are longer than the 21 days mandated in the law and that the FIS platform already has a structure to accommodate that requirement.
"I think a survey we already did about that showed only six or so credit unions with grace periods under 21 days," Hunter said.
Some card processors said a few of their credit unions may have to shorten July's credit card billing cycle in order to comply with the new grace period requirements.
"Working back from the due date, we have to calculate when the billing cycle will have to close to allow us to get the accounts processed and statements printed and mailed," said Steve Salzer, chief strategic, compliance and legal officer for PSCU Financial Services.
He also reported that, like the other processors, PSCU felt a bit ahead of the game since it had already started working with First Data to implement the changes to the disclosure protocols the law requires.
Part of the processor's task has been to review and explain how changes to the law might affect any upcoming card promotions or marketing efforts.
"With the law's new requirements about how often credit card interest rates can be changed, what are the appropriate credit scores and other parameters that need to be in place to make credit line increases?" Salzer offered as an example of an issue the processor was working through.
Mark Fenner, national sales manager for TNB Card Services, and Mitch Dawes, an account executive with TNB, stressed that the processor has been proactive about the changes required by the law and that it was working hard to make sure its credit unions understood how the changes might impact their card programs' bottom line.
Dawes cited the changes the new law makes as to when and how over-limit fees can be assessed as one example.
"Even though many credit unions haven't assessed fees when cardholders go over their credit limits, those that do might see a revenue hit if they were to stop assessing them rather than go through the administrative headache of allowing cardholders to opt-out or in as the law requires. Credit unions need to understand that."
Dawes said TNB was also helping credit unions evaluate their prospective card marketing plans in the light of the new law. Credit unions are looking closely at how low an introductory interest rate they might want to offer and the amount of the balance limit.
"It's a real question how much of a credit line a credit union might want to offer on an introductory card at an introductory rate, given that they might have that balance at that rate for some time," Dawes said.