NEWS, EVENTS, PUBLICATIONS & EMERGING ISSUES

SW&M EMERGING ISSUE
November 23, 2009

PRESIDENT OBAMA SIGNS THE CREDIT CARD TECHNICAL CORRECTIONS ACT OF 2009

On November 6, 2009, President Obama signed the Credit CARD Technical Corrections Act of 2009 (H.R. 3606) into law. The "technical correction" to the May 22, 2009 law – most commonly referred to now as the Credit CARD Act – makes it clear that the 21-day late notice mailing requirement applies only to credit card accounts. However, there are certain situations beyond credit card programs where the 21-day notice will remain a requirement. Specifically, if your credit union provides a grace period for repayment before charging any finance charge on certain open-end loans, your credit union must still continue to provide your member with 21 days to take advantage of the grace period; this provision of the Credit CARD Act remains unchanged.

As you may recall, Section 106 of the original Credit CARD Act prohibited creditors from assessing late payment fees or imposing other penalties unless the creditor adopted reasonable procedures to ensure that periodic statements were mailed or delivered to the consumer at least 21 days before the payment due date. This provision was intended to cover only credit card accounts; however, the provision, as enacted, applied to all open-end loans, including general lines of credit, lines of credit associated with share draft and checking accounts, signature loans, and home equity lines of credit, as well as the popular CUNA Loan Liner multi-featured, open-end lending programs. Credit unions spent the summer struggling to comply with this requirement, which became effective on August 20, 2009. Several compliance issues were identified which affected consolidated periodic statements, bi-weekly payment plans, and existing due dates, among other issues.

The corrections bill clearly states that the late-notice provision applies only to credit cards. Naturally, our credit union clients are asking what they should do next. The following is a brief review of certain practical solutions regarding the steps to take to “uncomply” with the former terms of the 21-day mailing provision.

For example, if your credit union followed the temporary solution permitted by the Federal Reserve Board in its interim rule to place a special notice on periodic statements informing a member that a payment would not be considered late if it was made within 21 days of the date the statement was mailed or delivered, regardless of the due date reflected on the statement, your credit union can simply stop placing this notice on periodic statements.

Many of our credit union clients, however, made more comprehensive changes to their open-end lending terms and practices, such as changing due dates to the end of the month or altering bi-weekly payment plans. If your credit union made such changes, your credit union will need to carefully evaluate its options and reputation risk in considering whether or not to make a business decision to revert back to pre-August 20, 2009 practices. A comprehensive analysis of this issue is beyond the scope of this article; we can assist your credit union in this regard, upon request.

If your credit union has any questions regarding the corrections bill and/or its impact on changes made by your credit union to comply with the 21-day late notice requirement, please do not hesitate to contact us.

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