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Compliance Questions about the 21-day CARD Fix
WASHINGTON (11/02/09)-Passage by the House and Senate of the CARD Act Technical Corrections Act is raising some questions by credit unions on what steps to “uncomply” with the former terms of the 21-day mailing provision. President Obama is expected to sign that bill, H.R. 3606, at any time and the Credit Union National Association (CUNA) has urged him to act quickly. As a “technical correction” to the May 2009 law—known now mostly as the Credit CARD Act--to make clear that a 21-day late notice mailing requirement only applies to credit card accounts, “it’s like the requirement never existed for the rest of open-end loans,” explained Mike McLain, CUNA’s Senior Compliance Counsel and Assistant General Counsel. “The Federal Reserve Board doesn’t have to amend its interim regulation because there’s no longer a statutory basis for the 21-day mailing requirement as it applies to open-end loans other than credit cards.” Credit unions, however, spent the summer struggling to comply with the requirement to provide at least 21 days after mailing the periodic statement for any open-end loan before assessing late payments fees or imposing other penalties. Numerous compliance problems were identified affecting consolidated periodic statements, bi-weekly payment plans, existing due dates, and more. “We know that credit unions expended a lot of time and resources to come up with a variety of ways to comply with this burdensome requirement, and now are asking what should they do next,” said McLain. Some credit unions simply followed a temporary solution permitted by the Fed in its interim rule to put a special notice on their periodic statements: Your Payment will not be considered as late for any purpose if it is made within 21 days of the date your statement is mailed or delivered, regardless of the due date that is reflected on the statement. “These credit unions can just stop putting this special notice on their periodic statements,” McLain said. Other credit unions decided to comply by listing several upcoming due dates on the current periodic statement to make sure that the member had plenty of notice. They also can just discontinue printing outward due dates on their periodic statements, noted McLain. Once it was clear in July that the Fed would not resolve credit unions’ problems with the 21-day mailing requirement by a regulatory interpretation, CUNA established as a high legislative priority to amend the CARD Act to resolve this problem. However, since no one could predict in August if and when a technical corrections bill would pass, many credit unions decided to make more comprehensive changes to their open-end lending terms and practices. “Credit unions that took actions such as changing due dates to the end of the month or altering bi-weekly payment plans will have to make their own business decisions on whether they want to revert to what they did prior to August 20,” said McLain. “As the Fed made clear this summer, changing a loan’s payment due date is not an action that requires compliance with Regulation Z’s change-in-terms rules.” However, McLain emphasized that there are certain situations where the 21-day notice will continue – beyond of course credit card programs, which are definitely subject to the 21-day notice. “Some credit unions apparently provide a grace period for repayment before charging any finance charge on certain open-end loans they offer. If there is a grace period on any type of open-end loan, the credit union must give the member 21 days to take advantage of the grace period,” McLain emphasized. “Congress was unwilling to change this aspect of the 21-day rule.” Anytime a lender decides to eliminate a grace period, a change-in-terms notice is required. If the loan is a credit card, the change-in-terms notice must be provided 45 days in advance (a rule that became effective August 20). If the loan is any other type of open-end loan, the change-in-terms notice must be given 15 days in advance – but starting July 1, 2010, all open-end loans will require a 45-day advance notice similar to the new credit card rule. “Credit unions are also asking about potential liability between May 22 – the date the CARD Act became law -- and today if there were any issues about their compliance efforts with the now-repealed 21-day notice requirement,” said McLain. “There isn’t any potential liability, because the technical correction made clear that the 21-day notice provision in the CARD Act was always intended to only apply to credit card accounts.”


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