NEWS, EVENTS, PUBLICATIONS & EMERGING ISSUES

SW&M EMERGING ISSUE
January 14, 2010

REGULATION ''Z'' FINAL RULES REGARDING OPEN END LOANS

As many of our clients are aware, on January 12, 2010, the Board of Governors of the Federal Reserve System ("Federal Reserve") approved final rules ("Final Rules") amending provisions in Regulation "Z" applicable to open end loans other than home equity lines of credit ("HELOCs"). The Final Rules will take effect in two (2) stages, with some provisions taking effect on February 22, 2010 and the remaining provisions taking effect on July 1, 2010. Credit unions should note that while the changes taking effect on February 22, 2010 mainly affect credit card accounts, the changes taking effect on July 1, 2010 generally apply to all non-HELOC open end loans.

Given the imminent effective date of certain provisions under the Final Rules, we recommend that credit unions work with their credit card processors and our office to ensure that they are prepared to comply with the Final Rules on their effective date. In particular, we note that the provisions taking effect on February 22, 2010 will require credit unions to, among other things, make significant changes in relation to the following:

• Credit Card Periodic Statement Disclosures: Make revisions to the format of their periodic statement disclosures and to include "repayment disclosures," which generally consist of the following: (1) minimum payment warnings disclosing the estimated amount of time (and total amount of payments) the cardholder would need to pay off his/her outstanding balance shown on the statement if only minimum payments were made; and (2) the estimated monthly payment amount (and total amount of payments) required to pay off the outstanding balance shown on the statement in three (3) years.


• Allocation of Payments: Apply payment amounts made by cardholders that exceed the amount of the required minimum monthly payment first to the balance with the highest annual percentage rate, and any remaining portion of such excess payment to the other balances in descending order based on the applicable annual percentage rate.


• Opt-In Requirement for Over-the-Limit Transactions: Card issuers will be barred from assessing an over-the-limit fee or charge on credit card accounts unless the cardholder consents, or opts in, to the payment of over-the-limit transactions in accordance with the Final Rules' requirements. The Final Rules provide a "model" opt-in form addressing such requirements.
• Submission of Credit Card Agreements to the Federal Reserve: Generally, card issuers that had at least 10,000 open credit card accounts as of the last business day of the calendar quarter must make quarterly submissions to the Federal Reserve of the credit card agreements offered to the public as of the last business day of the preceding calendar quarter. The first submission must be no later than February 22, 2010 and must include the credit card agreements offered to the public as of December 31, 2009.


• Increasing Annual Percentage Rates: The Final Rules generally prohibit increases in a rate during the first year after a credit card account is opened and increases in rates that apply to an existing credit card balance.

In addition, in relation to the July 1, 2010 changes, credit unions will need to revise other open end loan disclosures, including but not limited to, all open end loan account disclosures. Our office can assist your credit union with any questions it has regarding the Final Rules or reviewing disclosures that need to be revised as a result of the Final Rules. In addition, we anticipate providing further details regarding the Final Rules and assistance with drafting disclosures to our credit union clients subscribing to our legal updates in the near future.

 < BACK