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Feds new variable rate credit restrictions cause issues for CUs
WASHINGTON (1/20/10)--In the final rule issued last week that implements provisions of the Credit Card Accountability, Responsibility and Disclosure Act of 2009 (CARD Act), the Federal Reserve Board (Fed) indicated that credit unions that have a floor on their variable rate credit cards may not take advantage of the variable rate exception when increasing the annual percentage rates (APR) of those cards. Under these provisions, effective February 22, 2010, credit unions will only be able to raise their credit card rates under specific circumstances. One of these is when there is a variable rate and the increase is based on a change in an index that is not under the card issuer's control. However, under the rule issued last week, the Fed has indicated that the ability to raise rates under these circumstances will not apply if the issuer imposes a floor that will not permit the rate to decrease at all times in a manner consistent with reductions in the index. According to Credit Union National Association senior assistant general counsel Jeffrey Bloch, "many credit unions that impose variable rates use a floor to ensure that the APR is sufficient to compensate for the risks of their credit card programs and that these floors have also been necessary due to the very low levels of the underlying indexes that have existed in recent years." Bloch said that "CUNA has already been in contact with the Fed about this issue and the Fed has indicated its willingness to continue discussions with CUNA on the impact of these provisions on credit unions. Credit unions are not only concerned with this change, but are also concerned with the very short period of time they will have to make the necessary adjustments.” Bloch also notes that this change was first implemented in the final rule and that credit unions and others did not have an opportunity to comment on this restriction during the rulemaking process. The CARD Act rules issued last week also outline numerous other credit card industry reforms, including rules that prevent lenders from raising rates on existing balances, require issuers to consider a consumer's ability to make payments, and prevent over-the-limit fees, among other things. CUNA will hold an audio conference call on the new Regulation Z CARD Act rule on Feb. 2nd at 2 pm ET. More information on this call will be announced soon.


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