NAFCU: Fed Credit CARD Act proposal too broad

Nov. 23, 2009 – NAFCU on Friday said it supports the intent behind the Federal Reserve Board’s proposal for implementing Credit CARD Act provisions set to take effect in 2010, but it said the provisions are “unnecessarily broad” and would impose significant costs on all card issuers, including responsible lenders like credit unions.

NAFCU Associate Director of Regulatory Affairs Dillon Shea said the association is concerned about a provision mandating that card issuers cease penalty rates for consumers who pay six consecutive payments on or before the due date. That, he said, could leave the original 60-day delinquency that triggered the penalty unfulfilled. Shea said the association supports clarifying this issue by authorizing card issuers to roll over previous past due payments into the next payment cycle’s minimum payment.

Shea also urged the Federal Reserve Board to provide an exception to the provision requiring credit card payment-due dates be applied on the same day each month. The exception should apply to institutions that wait at least 15 days before assessing late fees, he said. The rule would effectively make it impossible to have a payment due from the 29th to the 31st of each month, he noted. He added that it would unduly burden credit unions and their members without providing tangible benefits.

He also told the Federal Reserve that card issuers should be permitted to charge a nominal fee for transactions that exceed the cardholder’s credit limit if they were approved based on a reasonable belief that the transaction would not exceed the limit. For instance, he noted that gasoline vendors may charge $1 to an account to test it’s validity. The consumer may then charge enough gas to their card to push the balance over the card’s limit. Shea explained, in those cases, card issuers are obligated to honor the transactions.

He also noted the association’s concern that the proposed rule’s disclosure requirements could end credit unions’ practice of extending lower annual percentage rates to their employees. This benefit ends  once the person leaves their position at the institution, but the Fed proposal gives no exception to allow the credit union to raise a separated employee’s annual percentage rate. Shea noted that clarifications for employee discounts exist for other open-end loans and home equity plans and urged a similar one for this rule.

Shea  also asked the Fed to clarify that when credit unions temporarily forgo raising rates, that they may still apply a higher rate in the future. “Clearly, any delay in raising the rate benefits the consumer,” he wrote.

He said the rule’s ban on marketing credit cards to students near a college campus are “unnecessarily complex.”