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21-day rule CUNA urges CUs document everything
WASHINGTON (9/20/09)--Starting today, periodic statements sent to members on their open-end loans must be provided at least 21 days before the payment due date in order for a credit union to charge a late fee, report the account as delinquent to credit bureaus, or impose a penalty interest rate. "The application of this Truth-in-Lending Regulation Z provision to all open-end credit presents significant compliance challenges in making changes to credit union lending programs that have been in place for over a quarter of a century," says Kathy Thompson, Credit Union National Association (CUNA) senior vice president of compliance. "This 21-day requirement, imposed by the new Credit Card Accountability, Responsibility and Disclosure (CARD) Act, applies not only to credit cards, but to all loans credit unions make using open-end lending forms, including unsecured lines of credit, home equity lines of credit—HELOCs--signature loans, automobile loans, and more." When the Federal Reserve Board published its interim final regulations on July 22, it acknowledged that "it may be difficult for some creditors to update their systems to produce periodic statements by August 20, 2009 that disclose payment due dates...consistent with the 21-day requirement." Therefore, the Fed's interim rule allows credit unions "for a short period of time" to prominently disclose elsewhere on or with the periodic statement that the member's payment will not be considered late if received within 21 days after the statement is mailed or delivered. CUNA is sending the first of two comment letters to the Fed today and that letter, in part, urges the agency to be clearer and define its "short period of time" term. “A reasonable interpretation of the phrase ‘short period of time’ is the time necessary for credit unions to make needed changes to be in compliance,” CUNA tells the regulator. CUNA says this could vary for each credit union and could be three months, six months or somewhat longer depending on the credit union's situation. CUNA and leagues are also pursuing legislation to limit the 21 day rule to credit cards or obtain much more time for compliance. CUNA’s Thompson reiterates, "Credit unions are struggling to comply with this complex requirement under a very tight timetable." She adds, "Since there was no notice and comment period that typically occurs before issuance of a final regulation, the Fed apparently does not understand that there are operational considerations far beyond reconfiguring the monthly statement." Late payments can trigger automated late payment notices, transfers of funds from other accounts, and other actions, all based on the payment due date programmed into the credit union's system. There are also contractual problems, such as with biweekly payment arrangements, that have to be addressed for credit unions to be in compliance. Recognizing that many credit unions cannot possibly have programs in place immediately that conform to the new regulation, CUNA urges that credit unions document everything they are doing to make a good faith effort to build a program to comply with the 21-day requirement. "This will include discussions with data processors, forms suppliers, attorneys and others about what is required, what changes need to be made, and how long it will take to execute those changes," advises Thompson. "Tracking your compliance efforts will not only be useful in responding to any examiner inquiries, but also important if the credit union ever finds itself under attack in court for failing to comply with this provision within weeks of release of the interim regulation." Credit unions have asked what is acceptable language to add to their periodic statements if they are unable to reprogram their systems for periodic statements mailed this fall. The Fed did not provide model language. "Certainly, the language does not have to be lengthy, but it must be prominent," emphasizes Thompson. Depending on what a credit union's system may accommodate, CUNA suggests possibilities on the periodic statement itself include:
* Putting the notice near the top of the periodic statement; * Printing it in colored ink; * Putting it in capitals; or * Surrounding it by asterisks.
Further, according to CUNA, if a mailing includes a postmark, the special notice on the periodic statement could read: "We will not consider your payment late if it is received within 21 days of the date on the postmark, regardless of payment due date(s) printed on this statement." Or, with or without a postmark, the credit union could state: "We will not consider your payment late if it is received by SPECIFIC DATE, regardless of the payment due date(s) printed on this statement." The Fed requires credit unions to have reasonable procedures to determine when statements are actually to be mailed by or on behalf of the credit union -- then the credit union will add 21 days to that expected mailing date to fill in the blank. CUNA has assembled a number of frequently asked questions (see resource link below) including what a credit union might consider a "short period of time" for how long it may continue to use the special notice on or with its periodic statements. CUNA's resources also include information on the other provision in the Credit CARD Act that goes into effect today that only applies to credit cards. That provision requires change-in-term notices be provided at least 45 days in advance before increasing the annual percentage rate (APR) or changing significant terms in the credit card agreement, rather than the current 15-day notice period.


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