Consumer Compliance Outlook
News from Washington: Regulatory Updates
The Board of Governors of the Federal Reserve System (Board) releases report on agreements between credit card issuers and institutions of higher education concerning credit cards issued to students during 2009. The Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit CARD Act) requires card issuers to submit to the Board annually their agreements with educational institutions or affiliated organizations, such as alumni associations, including payments made to institutions or organizations and the number of accounts opened under the agreement. The Board's report covers 1,044 agreements in effect during 2009. A new online database, http://www.FederalReserve.gov/CollegeCreditCardAgreements , provides additional information about the agreements and allows users to access them in PDF format. The Board's announcement and the report are available at http://www.federalreserve.gov/newsevents/press/bcreg/20101025b.htm.
The Board announces a final rule implementing recent legislation modifying the effective date of certain disclosure requirements for gift cards under the Credit CARD Act. The rule finalizes an interim final rule published in the Federal Register on August 17, 2010. For gift certificates, store gift cards, and general-use prepaid cards produced prior to April 1, 2010, the legislation and interim final rule delay the August 22, 2010 effective date of these disclosures until January 31, 2011, provided the issuers disclose through in-store signage, messages during customer service calls, websites, and general advertising that: (i) the underlying funds of the card or certificate do not expire; (ii) consumers have a right to a free replacement certificate or card, which must be accompanied by the packaging and materials typically associated with the certificate or card; and (iii) any dormancy, inactivity, or service fee that might otherwise be charged will not be charged if such fees do not comply with Section 915 of the Electronic Fund Transfer Act. The Board's announcement and the Federal Register notice are available at http://www.federalreserve.gov/newsevents/press/bcreg/20101019b.htm.
The Board proposes a rule amending Regulation Z to clarify aspects of the Board's rules under the Credit CARD Act. The proposal is intended to enhance protections for consumers and to resolve areas of uncertainty so that card issuers fully understand their compliance obligations. The proposal would clarify three issues:
- Promotional programs that waive interest charges for a specified period of time are subject to the same protections as promotional programs that apply a reduced rate for a specified period. For example, a card issuer that offers to waive interest charges for six months would be prohibited from revoking the waiver and charging interest during the six-month period unless the account becomes more than 60 days delinquent.
- Application and similar fees that a consumer is required to pay before a credit card account is opened are covered by the same limitations as fees charged during the first year after the account is opened. Because the total amount of these fees cannot exceed 25 percent of the account's initial credit limit, a card issuer that, for example, charges a $75 fee to apply for a credit card with a $400 credit limit generally would not be permitted to charge more than $25 in additional fees during the first year after the account is opened.
- When evaluating a consumer's ability to make the required payments before opening a new credit card account or increasing the credit limit on an existing account, card issuers must consider information regarding the consumer's independent income, rather than his or her household income.
The comment period closes on January 3, 2011. The Board's announcement and the Federal Register notice are available at http://www.federalreserve.gov/newsevents/press/bcreg/20101019a.htm.
Banking agencies issue final Community Reinvestment Act (CRA) rule to implement provision of Higher Education Opportunity Act (HEOA). On September 29, 2010, the Board, Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC), and Office of Thrift Supervision (OTS) (the agencies) issued a joint final rule under the CRA to implement a provision of HEOA that requires the agencies to consider low-cost higher education loans to low-income borrowers as a positive factor when assessing a financial institution's record of meeting community credit needs under the CRA. The rule also incorporates a CRA statutory provision that allows the agencies to consider a financial institution's capital investment, loan participation, and other ventures with minority-owned financial institutions, women-owned institutions, and low-income credit unions as factors in assessing the institution's CRA record. The effective date for the rule was November 3, 2010. The agencies' joint press release and the Federal Register notice are available at http://www.federalreserve.gov/newsevents/press/bcreg/20100929a.htm.
HUD announces new reverse mortgage option. On September 22, 2010, the United States Department of Housing and Urban Development (HUD) announced a new modified version of its home equity conversion mortgage (HECM). Like HECM, the new product is a reverse mortgage that is insured by the federal government and allows older homeowners to tap into the equity of their home to pay expenses without having to make mortgage payments. The Federal Housing Administration (FHA) designed this second reverse mortgage option, called HECM Saver, for homeowners who want to borrow a smaller amount than what would be available with a HECM standard loan. HUD's announcement is available at http://portal.hud.gov/portal/page/portal/HUD/press/press_releases_media_advisories/2010/HUDNo.10-205.
FTC proposes to ban deceptive mortgage ads. On August 16, 2010, the Federal Trade Commission (FTC) proposed a rule that would ban material misrepresentations in mortgage advertising and would allow the FTC to seek civil penalties and injunctions against violators. The proposed rule would apply to mortgage lenders, brokers, and servicers; real estate agents and brokers; advertising agencies; home builders; lead generators; rate aggregators; and other entities under the FTC's jurisdiction. The proposed rule lists 19 examples of misrepresentations about fees, costs, obligations, and other aspects of credit that would violate the proposed rule. The deadline for comments was November 15, 2010. The FTC's announcement is available at http://www.ftc.gov/opa/2010/09/nprm.shtm.
FTC proposes changes to update and improve credit reporting notices. On August 16, 2010, the FTC proposed changes to the notices that consumer reporting agencies provide to consumers and to users and furnishers of credit report information under the Fair Credit Reporting Act (FCRA). The deadline for comment was September 21, 2010. The FTC's announcement is available at http://www.ftc.gov/opa/2010/08/fcra.shtm.
FHA begins offering short refinancing options for underwater borrowers. On September 7, 2010, HUD began providing an additional refinancing option to borrowers who owe more on their mortgage than their home is worth. The program is known as the FHA Short Refinance option and has a number of requirements: All lien holders must consent, the value of the home must be less than the value of the existing mortgage, the homeowner must qualify for a new loan under standard FHA underwriting requirements, the property must be the homeowner's primary residence, the borrower's existing first lien holder must agree to write off at least 10 percent of the unpaid principal balance, the existing loan must not be an FHA-insured loan, and the refinanced FHA-insured mortgage must have a loan-to-value ratio of no more than 97.75 percent and a combined loan-to-value ratio no greater than 115 percent. The U.S. Department of the Treasury will provide incentives to existing second lien holders who agree to a full or partial extinguishment of the liens. HUD's announcement is available at http://portal.hud.gov/portal/page/portal/HUD/press/press_releases_media_advisories/2010/HUDNo.10-190.