Fed Clarifies Portions of New TILA Rules
April 28, 2011
April 28, 2011
The Federal Reserve Board finalized a number of clarifications to its Credit Card Accountability Responsibility and Disclosure (CARD) Act in the April 25, 2011 Federal Register.
The clarifications relate to the Fed’s final rule and are intended to help card issuers more fully understand their compliance obligations under changes to Regulation Z. The Fed had released the clarifications in a proposed rule that was issued in early November 2010. Specifically, the clarifications state:
- 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. Since 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 account opening; and
- 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 clarifications will become effective on October 1. The Fed noted, however, that financial institutions may comply with the final rule ahead of that effective date.
The Credit Card Accountability Responsibility and Disclosure Act, which was enacted in May 2009, made a series of changes to credit card rules, which were implemented under Reg. Z Truth in Lending rules.
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