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Credit Card Provisions of Regulation Z Commentary RevisedBy James T. Bork, J.D., LL.M., editor, CCH BANKING COMPLIANCE LIBRARY. Bork has practiced banking law and served as in-house bank counsel. He also has written articles and spoken on bank regulatory and compliance issues.The Federal Reserve Board has approved revisions to the Official Staff Commentary of Regulation Z (12 CFR Part 226—Truth in Lending) that establish rules by which credit card issuers disclose fees for expedited payment services and expedited card delivery services. The revisions also affect commentary sections under which card issuers are permitted to replace an accepted credit card and, under certain conditions, permit a card issuer to replace an accepted card with more than one card.Other revisions to the commentary regarding the disclosure of private mortgage insurance payments and the selection of Treasury security yields for determining whether a mortgage loan is a high-rate, high-fee loan will be addressed in a future installment of “Banking Compliance Matters.” EXPEDITED CREDIT CARD SERVICES Some credit card issuers offer expedited services for payment processing and the mailing of plastic cards. Card issuers generally charge fees for these services, but there has been no common standard for how these fees should be treated under Reg. Z. As used in the Fed’s revised commentary, the term “expedited” generally refers to any form of payment or delivery other than the standard mail service typically made available to credit card customers. Expedited Payment ServiceAn expedited payment service provides cardholders an alternative to mailing a payment that might not reach the card issuer by the payment due date. To avoid being assessed a late payment fee, a cardholder requests and pays a fee for the expedited payment service, which is typically an electronic funds transfer or a draft on the cardholder’s checking account. The expedited payment fee is generally lower than the late payment fee that would otherwise be imposed.When the Fed published its proposed rule in December 2002, it determined that an expedited payment fee was not a finance charge. Finance charges are those that are payable directly or indirectly by the consumer and imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit. The Fed did, however, propose to classify the fee as an “other charge” and require its disclosure as such. In the context of an open-end credit plan, “other charges” include significant fees related to the plan that are not finance charges. In its final rule, the Fed has backed away from that proposal, stating that the expedited payment fee as described in the proposed rule “does not clearly meet the standard for treatment as an ‘other charge’.” The final rule revises Paragraph 6(b)-2 of the Official Staff Commentary by adding a provision that excludes expedited payment fees from the category of “other charges,” but only if consumers may make payments by other reasonable means without paying a fee to the creditor. Expedited Delivery of Plastic CardsCardholders occasionally ask card issuers to expedite the delivery of new or replacement plastic cards. This service might be used when a cardholder wishes to replace a lost or stolen credit card, but it could be requested under other circumstances as well.When it published the proposed rule, the Fed determined that a charge for expedited card delivery is neither a finance charge nor an “other charge.” This view is reflected in the final rule, which revises Paragraph 6(b)-2 of the Official Staff Commentary to include a provision that excludes expedited card delivery service fees from the category of “other charges,” provided delivery of the card is also available by standard mail service (or other means at least as fast) without paying a fee for delivery. ISSUANCE OF CREDIT CARDS Regulation Z and the Official Staff Commentary generally prohibit card issuers from issuing credit cards other than in response to a request or application. The “one-for-one” rule, which is articulated in Official Staff Commentary Paragraphs 12(a)-5 and 12(a)-6, has generally allowed card issuers to issue only one card as a replacement for an existing card. An exception to this rule has been allowed in the case of a credit/debit card being replaced by separate cards having credit and debit functions. The Fed’s final rule adds an additional exception to the “one-for-one” rule. Card issuers can now replace an accepted card with more than one renewal or substitute card, provided that:
EFFECTIVE DATE OF REVISIONS
These revisions to the Reg. Z Official Staff Commentary became effective April 1, 2003. The date for mandatory compliance is Oct. 1, 2003.
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