United States: #ThrowbackThursday: UDAP Final Rules And Board Regulatory Actions

Originally published as a Morrison & Foerster client alert in December 2008.

UDAP Final Rules

The National Credit Union Administration ("NCUA") approved a joint final rule addressing unfair or deceptive acts or practices ("UDAP") relating to credit cards written by the Board of Governors of the Federal Reserve System ("Board"), the Office of Thrift Supervision and the NCUA (collectively, the "Agencies").

The implementation of the UDAP rule will have a dramatic impact on both credit card issuers and consumers and will be the most substantial overhaul of disclosure rules and restrictions on lender practices in decades.

The UDAP rule limits or prohibits:

Interest Rate Increases on New and Existing Balances:  Significantly, the UDAP rule would prohibit issuers from increasing rates disclosed at account opening on existing and new credit card balances, unless expressly permitted under one of five exceptions.  The UDAP rule is a notable departure from the proposed rule, which would have prohibited issuers from increasing the APR on all existing balances unless the increase fell within one of the express proposed exemptions.

  • For example, the UDAP rule requires issuers to disclose the APR that will apply to each category of transactions on the account and prohibits increases in the APR for a category of transactions unless the increase falls within one of the express exceptions.  The rates disclosed at account opening can include a rate that comes into effect at a later point in time.  The rate cannot be increased unless the rate is disclosed at account opening upon expiration of a period of time disclosed at account opening.  Contingent future rates and ranges of future rates are prohibited.
  • Also, a rate for new balances can be increased pursuant to advance notice under Regulation Z.  However, issuers are prohibited from applying increased rate changes that are based on the advance notice exception to existing balances in most cases.
  • In addition, the UDAP rule expressly limits all rate changes during the first year after the account is opened.  The combination of these limitations will prevent card issuers from repricing accounts based on risk and could raise a host of challenges for card issuers.
  • The UDAP rule provides an exception for increasing rates upon delinquency if an account is 30 or more days past due and for failure to comply with the terms of a workout agreement.

Payment Allocation Methods: Issuers are prohibited from allocating payments in excess of the minimum payment first to the balance with the lowest APR.  Instead, the UDAP rule requires issuers to apply payments in one of two ways.  An issuer must either apply amounts in excess of the minimum payment:  (1) first to the balance with the highest APR; or (2) pro rata among the balances.  The Agencies did not adopt proposed rules that would limit payment allocation methods for promotional balances.  The Agencies, however, have adopted, under the rate limitation, provisions that prohibit the assessment of deferred interest.  Furthermore, the Agencies clarify that the UDAP rule does not limit or otherwise address an issuer's ability to determine the amount of the required minimum periodic payment or how that payment is allocated.

Assessment of Late Fees and Related Charges:  Similar to the proposed rule, issuers are prohibited from treating a payment as late unless they provide a consumer with a reasonable amount of time to make payment.  A safe harbor is provided for institutions that establish procedures to ensure that billing statements are mailed or delivered at least 21 days before the payment due date.  In addition, the Agencies have added a provision to the regulation to require issuers to establish that they have complied with the timing requirements.

Double-Cycle Billing:  Similar to the proposed rule, issuers are prohibited from including finance charges for prior billing cycles when calculating the amount of interest charged in the current cycle.  The Agencies have addressed, at least in part, industry concerns that the proposed rule was not limited to circumstances in which the two-cycle method resulted in greater interest charges.  In this regard, the Agencies indicate that they did not intend this result and have added commentary clarifying this point.

Fee-based Account Limitations:  Card issuers would be prohibited from financing during the first year security deposits or fees for the issuance or availability of credit if those deposits or fees, in the aggregate, utilize the majority of the available credit on the account at account opening.  In addition, security deposits and fees exceeding 25% of the credit limit would have to be spread out over six months (rather than the proposed twelve months) and, therefore, could not be applied during the month the account is opened.

The UDAP rule is effective July 1, 2010.  This is approximately eighteen months after the rule's anticipated appearance in the Federal Register.  In this regard, the Supplementary Information accompanying the UDAP rule states that "the final rule is not intended to suggest that [covered practices] are unfair or deceptive prior to the effective date," and clarifies that "prior to the effective date, institutions may [continue to take] actions that will be prohibited once the final rule is effective."

Issues Not Addressed by UDAP Rule

The Agencies are not taking action on proposed provisions addressing credit holds.  Similarly, the UDAP rule does not address firm offers of credit advertising multiple APRs.  Instead, the Board will address this practice by amendments to Regulation Z.

The Agencies are not taking action on overdraft services on deposit accounts or debit holds at this time.  Rather, the Board will issue under Regulation E a proposal on overdraft services to determine whether to take further action.

Board Regulatory Actions

In addition to approving amendments to Regulation AA concerning unfair or deceptive credit card practices, the Board approved final amendments to Regulation Z, final amendments to Regulation DD and proposed amendments to Regulation E.

Regulation Z.  The final amendments to Regulation Z include:

  • Revisions to the five main types of open-end credit disclosures governed by Regulation Z, including application and solicitation disclosures, account-opening disclosures, periodic statement disclosures, change-in-terms notices, and advertising disclosures;
  • Substantive revisions in the change-in-terms requirements, including increasing the amount of time notice must be sent before a change takes effect and requiring a 45-day advance notice before a rate is increased due to consumer delinquency or default; and
  • Additional consumer protections for credit card accounts to complement the final amendments to Regulation AA, such as cut-off hour restrictions for mailed payments to be considered timely.

Regulation DD.  The final amendments to Regulation DD include:

  • Revisions extending to all institutions (even those institutions that do not promote or advertise payment of overdrafts) the requirement to disclose the aggregate dollar amounts charged for overdraft fees and returned item fees on periodic statements; and
  • Revisions requiring institutions that provide account balance information through an automated system to provide a balance that does not reflect funds that may be made available to cover overdrafts.

Regulation E.  The proposed amendments to Regulation E would:

  • Require financial institutions to provide consumers the right to opt out of, or alternatively opt in to, the payment of overdrafts for ATM withdrawals and one-time debit card transactions; and
  • Prohibit institutions from assessing overdraft fees caused by certain debit holds.

Proposed overdraft revisions originally set forth under Regulations AA and DD have been withdrawn.  The comment period for proposed revisions to Regulation E closes 60 days after publication in the Federal Register.

Final amendments to Regulation Z are effective July 1, 2010 (an approximate 18-month implementation period) and final amendments to Regulation DD are effective January 1, 2010 (an approximate 12-month implementation period).

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.