This article briefly summarizes major legislative and regulatory initiatives through May 2009 that focus, at least in part, on consumer affairs. If you would like more information on any of these developments, please contact us.
Extension of the $250,000 Deposit Insurance Limit
The Helping Families Save Their Homes Act, enacted May 20, 2009, extends the temporary increase in the standard maximum deposit insurance amount to $250,000 per ownership through Dec. 31, 2013.
Credit CARD Act of 2009
Section 101 amends the Truth in Lending Act to require 45 days' advance notice of any increase in the APR or any other significant change in the terms of a credit card account, together with a notice that the consumer has a right to cancel further advances, without paying off the balance, to avoid the new APR or changed terms. Limits are placed on a creditor's rights to increase the APR, and if a creditor increases the based on specific factors, the creditor must also consider those factors in determining whether to reduce the APR. Promotional rates must remain in effect for at least six months, and the regular APR on a new account may not increase for one year.
Section 102 sets limits on fees and interest charges, including a prohibition against double-cycle billing and penalties for on-time payments. It authorizes consumers to elect whether to prohibit a creditor from completing any over-the-limit transactions resulting in a fee. It allows an over-the-limit fee to be billed only once unless the obligor obtains an additional extension of credit in excess of the credit limit. It requires penalty fees to be reasonable and obliges the Federal Reserve to adopt regulations for determining what is reasonable.
Section 103 prohibits a creditor from using the term "fixed rate" unless the credit card account maintains a fixed rate over a specific period that is clearly and conspicuously identified in the account terms.
Section 104 revises requirements for prompt and fair crediting of card payments.
Section 106 requires the payment due date to be the same day each month and requires that when a payment due date falls on a weekend or holiday, the consumer shall be allowed to pay on the next business day without being treated as paying late. Creditors must deliver statements at least 21 days before the due date.
Section 109 requires card issuers to consider the consumer's ability to make the required payments when opening a credit card account or increasing the credit limit.
Section 201 revises payoff and repayment timing disclosure requirements.
Section 202 revises requirements relating to late-payment deadlines and penalties. It requires a periodic statement of account to disclose: (1) the date by which a payment is due, in order to avoid the imposition of a late-payment fee; and (2) any possible resulting increase in interest rates for late payments.
Section 204 requires creditors to post credit card agreements on the Internet and to deposit copies of their credit card agreement forms with the Federal Reserve.
Title III of the Act institutes a variety of protections for consumers under age 21 with respect to credit cards.
Title IV imposes disclosure requirements and makes it generally unlawful to impose a dormancy, inactivity or service fee for a gift certificate, store gift card, or general-use prepaid card, or to sell or issue these cards subject to an expiration date.
Regulation Z (Truth in Lending) Amendments
On July 30, 2008, Congress enacted the Mortgage Disclosure Improvement Act of 2008, amending the Truth in Lending Act to require creditors to make early disclosures on any closed-end loan secured by a consumer's dwelling even when it is not his or her principal dwelling. MDIA also prohibits the collection of fees before the consumer receives the disclosures, other than a fee for obtaining the consumer's credit report. Creditors must deliver or mail the early disclosures at least seven business days before consummation. If the APR contained in the early disclosures becomes inaccurate, the creditor must "redisclose" and provide corrected disclosures, which the consumer must receive at least three business days before consummation. These disclosures also must inform consumers that they are not obligated to complete transactions simply because disclosures were provided or because they have applied for a loan. On May 7, 2009, the Federal Reserve adopted a final rule implementing these requirements with an effective date of July 30, 2009.
Unfair Credit Practices Rules
On Dec. 18, 2008, the federal banking agencies jointly announced a final rule banning six unfair credit card practices that have since also been addressed under the Credit CARD Act of 2009. Also on that date, the Federal Reserve announced two final consumer protection rulemakings: comprehensive changes to Regulation Z's open-end credit sections, and new disclosures under Regulation DD for overdraft protection services. The Fed also proposed Regulation E amendments to prohibit overdraft fees for:
- paying ATM withdrawals and one-time debit card transactions that overdraw a consumer's account, unless the consumer is given notice and the right to opt out; and
- overdrafts caused by a debit hold that exceeds the actual amount of the transaction.
RESPA Rule – "Required Use"
On Nov. 17, 2008, the U.S. Department of Housing and Urban Development published a final rule to simplify and improve the disclosure requirements for mortgage settlement costs under the Real Estate Settlement Procedures Act of 1974. The rule:
- modifies the "good faith estimate" form (GFE);
- provides more accurate estimated costs of settlement services shown on the GFE;
- improves the disclosure of yield spread premiums;
- modifies the HUD-1 settlement statement and makes it more comparable to the GFE;
- requires that a copy of a "closing script" be read and provided to borrowers;
- clarifies the HUD-1 instructions;
- clarifies HUD regulations concerning discounts; and
- expressly states when RESPA permits certain pricing mechanisms that benefit consumers, including average cost pricing and discounts.
The revised definition of "required use" of an affiliated service provider in an affiliated business transaction became the subject of litigation by the National Association of Home Builders. As a result, on May 6, 2009, HUD suspended the new definition. Until July 16, 2009, the prior definition of "required use" codified in HUD's RESPA rules will continue to apply.
Regulation D Amendments – Savings Account Transfers
For savings deposits, Regulation D limits certain "convenience" transfers or withdrawals to six per month: preauthorized or automatic transfers (such as overdraft protection transfers or bill transfers deducted directly from the depositor's savings account); telephone, fax and online transfers; and transfers by check, debit card or similar order payable to a third party. Within this limit is a sublimit: No more than three transfers or withdrawals may be made by check, debit card or similar order. Regulation D does not limit less convenient transfers and withdrawals from savings deposits, such as transfers or withdrawals by mail, messenger or automated teller machine, or those made in person or over the telephone (via check mailed to the depositor). Effective July 2, 2009, Regulation D will be amended to eliminate an obligation for banks to impose the "three" sublimit. Banks may continue to impose the sublimit, however, as long as they classify the limited accounts as "savings deposits."
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
