Sean Kulczycki

Delivery of Periodic Statements

The changes to §226.5(b)(2)(ii)(A) & (B) primarily serve to readjust the timing requirements for delivery of periodic statements. These timing requirements were initially modified by the Fed's July 22, 2009, interim final rule implementing the Credit CARD Act. As you may recall, this interim final rule required financial institutions to “adopt reasonable procedures designed to ensure that periodic statements are mailed or delivered at least 21 days prior to the payment due date and the date on which any grace period expires.” This provision was added because it was required by the Credit CARD Act. However, on November 6, 2009, Congress passed the Credit CARD Technical Corrections Act of 2009, which had the sole purpose of eliminating the applicability of the 21-day rule to non-credit card accounts.

As a result, §226.5(b)(2)(ii)(A) was revised so the 21-day requirement applies only to credit card accounts. The requirement that periodic statements be mailed or delivered 21 days prior to the expiration of any grace period was moved to §226.5(b)(2)(ii)(B). While this provision still applies to all open-end consumer credit plans, its effect is limited to credit cards since other plans rarely have grace periods.

Advanced Written Notice for Significant Changes in Account Terms

The changes to §226.9(c)(2) require that creditors provide earlier written notice to consumers “when a significant change in account terms is made…or the required minimum periodic payment is increased….” Previously, creditors were required to mail or deliver the notice at least 15 days prior to the effective date of the change.  However, the written notice must now be provided at least 45 days prior to the effective date of the change. This change will apply to overdraft protection lines of credit and other open-end lines of credit that are subject to Regulation Z. The timing for notification of changes for home equity lines of credit (HELOCs) remains 15 days. However, the Fed's August 26, 2009, proposed rule on Regulation Z also increases the timing for notice of changes to 45 days. As of the date of this article, a final rule has not been issued for this proposal.

Advanced Written Notice for Increase in Rates Because of Delinquency or Default

Similar to changes in account terms, §226.9(g) requires that for plans other than HELOCs, a creditor must provide a written notice to each consumer who may be affected when a rate is increased because of delinquency or default or as a penalty for one or more events specified in the account agreement, such as making a late payment. The notice must be provided “at least 45 days prior to the effective date of the increase.” Additional requirements for the contents of the notice, as well as certain exceptions to the requirements, appear in the regulation.

Revised Cut-Off Times for Accepting Loan Payments

Section 226.10 generally says a creditor shall credit a consumer’s account as of the date of receipt of a payment, except when a delay in crediting will not cause a finance or other charge. In addition, subsection 226.10(b) allows a creditor to “specify reasonable requirements for payment that enable most consumers to make conforming payments.” The current official staff commentary elaborates on these “reasonable requirements,” including allowing institutions to establish a cut-off time for receipt of payments. The change to these provisions is that, as of February 22, 2010, a cut-off time established by a bank for receiving payments “shall be no earlier than 5 p.m. on the payment due date at the location specified by the creditor.” Thus, a creditor that does not specify that payments must be made by mail to a particular location, for example, a post office box will have to credit payments made in person up to 5 p.m. on the day of receipt. This revised provision applies to all open-end credit plans, including credit cards, HELOCs and overdraft protection lines of credit.

Revised Rule for Sunday Payment Dates

New §226.10(d)(1) states “if a creditor does not receive or accept payments by mail on the due date for payments, the creditor may generally not treat a payment received the next business day as late for any purpose.” This will occur if the payment due date falls on a Sunday or a federal holiday or if the creditor does not receive its mail on Saturdays. However, §226.10(d)(2) clarifies if a “creditor accepts or receives payments made on the due date by a method other than mail, such as electronic or telephone payments, the creditor is not required to treat a payment made by that method on the next business day as timely, even if it does not accept mailed payments on the due date.” This revised provision also applies to all open-end credit plans, including credit cards, HELOCs and overdraft protection lines of credit.

Misleading Use of the Term "Fixed"

Section 226.16(f) applies to all open-end credit plans, including HELOCs, and specifically prohibits an advertisement from referring to an APR as “fixed” unless the advertisement also specifies a time period the rate will be fixed and the rate will not increase during that period. If a time period is not specified, then the rate should not increase while the plan is open. A similar provision was added to the closed-end credit advertising requirements as of October 1, 2009.

Prohibited Inducements

Lastly, §226.57(c) prohibits creditors from offering a college student any tangible item to induce him or her to apply for an open-end consumer credit plan if the offer is made on or near a college or university campus or at an event sponsored by or related to an institution of higher education.