CARD Act Compliance Issues: Guest Opinion
It has been more than four years since the Credit CARD Act was passed by Congress and more than three years since the compliance dates set by the Federal Reserve Board (many compliance professionals may still be haunted by the date Feb. 22, 2010). While it would seem like credit card compliance issues are in the rearview mirror, now is the perfect time for credit unions to review their procedures to ensure they remain compliant.
Now that the Consumer Financial Protection Bureau has met its Dodd-Frank mandates, its attorneys are freed-up to review other areas of concern—including credit cards. The CFPB has repeatedly stated it will use consumer complaints as a prime indicator of where to place its resources. Not surprisingly, credit cards are the number two category of complaint at 21% (edged out only by mortgages at 48%). And, from a global perspective, the CFPB wants to protect as many consumers as possible. By focusing on mortgages and credit cards (not to mention student loans), the CFPB is certainly casting a wide net.
Two reports from the CFPB provide valuable insight into the future focus on credit cards. First, the CFPB’s Fall 2012 Supervisory Highlights identified areas of concern the CFPB found during examinations of the largest depository institutions. Most credit unions are aware of the prominent fines to large banks for unfair or deceptive acts or practices related to credit card add-on products. And, that was not a one-time event, as the CFPB has continued to analyze issues related to credit card add-on products—including a recent settlement with Chase Bank and ongoing talks with Bank of America. While credit unions may not have had the same types of credit card add-on products, the compliance (and reputation) risks are definitely ratcheted up in the credit card area.
Beyond the headline-grabbing fines, the report highlighted issues that could trip up even the most detail-oriented compliance professional. For example, the CFPB cited financial institutions with failing to obtain a joint owner’s consent to a credit limit increase on a credit card account when the request was initiated by an individual under the age of 21. According to Regulation Z, credit unions must consider a member’s ability to pay a credit card before they open an account or increase a member’s credit limit. When a member is under the age of 21, the member must have their own independent ability to pay or have a joint owner who is above the age of 21. In examinations, the CFPB found that individuals—under the age of 21—were obtaining credit limit increases without the written agreement of the joint owner who is above the age of 21. As you can probably tell, this is very specific issue (and very hard for credit unions’ systems to track), but it is on the CFPB’s radar.
Similarly, the CFPB’s report highlighted the failure to perform a rate reevaluation on credit card accounts that were acquired during a merger. In these situations, the surviving credit union steps in the shoes of the institution that had previously raised the member’s rate and has the obligation to conduct rate reevaluations every six months. Given the pace of mergers in the credit union industry, this last one should definitely be on credit unions’ radar.
More recently, the CFPB issued its CARD Act Report which reviews how the law impacted the consumer credit card market, but also highlighted additional areas of concern. For credit unions, the translation for “additional areas of concern” is simple: future regulation. Of particular note is the CFPB’s discussion of transparency issues. Specifically, the CFPB is investigating online disclosures and whether information on the member’s periodic statement should be duplicated on the credit union’s online banking portal. For example, the CFPB is considering whether minimum payment and late payment warnings should be disclosed when a member goes online to view their credit card transactions. Compliance professionals that worked through updating the actual periodic statements know the headaches that would ensue if the CFPB mandated these specific content and formatting requirements.
While the CFPB’s attention to credit cards has not lead to additional regulation yet, it does increase the need for credit unions to review their past implementation of the Credit CARD Act requirements to ensure they are meeting the existing requirements and did not miss anything.
Steve Van Beek is attorney and counselor at Howard & Howard Attorneys, PLLC in Royal Oak, MI. Contact 248-723-0521 or svb@h2law.