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#1220837 - 07/22/09 09:31 PM Re: Credit Card Reform Act/OE Loans ahkcompliance
azbanker Offline
Member
Joined: Apr 2008
Posts: 55
We are going to go in and change our specs to drop our statements 23 days ahead of due date instead of the current 15. The customer then has 10 days "grace" after the due date before incurring a late charge.

Our system calculates projected interest based on the balance the day the statement drops and bills that amount.

Anyone else working their specs like this or are you billing interest to the statement date? While the fix seems easier for us I'm worried we are not billing correctly (auditors haven't mentioned it)

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Lending Compliance
#1221011 - 07/23/09 12:59 PM Re: Credit Card Reform Act/OE Loans azbanker
AuditorK Offline
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Joined: Feb 2003
Posts: 962
PA
Another potential problem, or at least a source of confusion with our HELOCs, is this:

Suppose that we bill on the 7th of the month for a due date of the 30th. The customer has until the 15th of the next month to pay before a late charge is assessed.


We could be generating and sending the next month's bill before the customer pays the previous month's bill (okay because still within our 15 day "courtesy period"). So how is that bill going to look - due for two payments, but not late?
Last edited by AuditorK; 07/23/09 01:16 PM.
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#1221019 - 07/23/09 01:06 PM Re: Credit Card Reform Act/OE Loans AuditorK
Janet Munns Offline
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Janet Munns
Joined: Apr 2007
Posts: 163
Florida
We are deailing with the same issue. We contacted our core vendor and they are telling us that this act only affects open-end credit NOT secured by real estate. I haven't found that clarification as yet, but will continue searching. Does anyone know of this to be the case?
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#1221023 - 07/23/09 01:07 PM Re: Credit Card Reform Act/OE Loans Janet Munns
Skittles Online
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Skittles
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Posts: 13,963
TN
Sorry - everything I've read states HELOCs are included.
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#1221050 - 07/23/09 01:22 PM Re: Credit Card Reform Act/OE Loans Skittles
Phoenix Offline
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Phoenix
Joined: May 2003
Posts: 832
southeast
for the purpose of mailing or delivering periodic statements at least 21 days in advance, yes, HELOCs are included.

for the need to notify customers at least 45 days in advance of adverse changes to their accounts, no, the CARD Act does not include HELOCs; BUT - wait until we all read the FRB proposed regulations that will probably be issued this week!

for the rest of the CARD Act - it's not certain to what degree HELOCs are included.
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#1221079 - 07/23/09 01:41 PM Re: Credit Card Reform Act/OE Loans Phoenix
Janet Munns Offline
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Janet Munns
Joined: Apr 2007
Posts: 163
Florida
Originally Posted By: Phoenix
for the purpose of mailing or delivering periodic statements at least 21 days in advance, yes, HELOCs are included.


I'm not sure I agree. In reviewing the Fed's final rule, at the very beginning it clearly states in parenthesis (not home-secured).

I think it's time find a new career!!
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Florida

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#1221094 - 07/23/09 01:56 PM Re: Credit Card Reform Act/OE Loans Janet Munns
AuditorK Offline
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Joined: Feb 2003
Posts: 962
PA
JMunns - You are correct that the beginning of the rule states (not home-secured), however the commentary specifically gives an example of courtesy period using a home equity plan. Also the San Francisco FRB yesterday answered a question during their conference call stating that HELOCs are included in the new 21 day rule.

This is crazy and will only be getting worse from what we're being told!

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#1221101 - 07/23/09 02:08 PM Re: Credit Card Reform Act/OE Loans AuditorK
Dan Persfull Offline
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Dan Persfull
Joined: Aug 2002
Posts: 46,844
Bloomington, IN
Quote:
This is crazy and will only be getting worse from what we're being told!


That's because you have had a bunch of idiots from the top down running this country since Jan 1989 and unfortunately the worse of them, IMO, will have reign for at least another 4 years.

Sorry, but sometimes you just have to say what you are thinking!
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#1221115 - 07/23/09 02:17 PM Re: Credit Card Reform Act/OE Loans Dan Persfull
AuditorK Offline
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Joined: Feb 2003
Posts: 962
PA
Way to go Dan! That's the sad truth.

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#1221123 - 07/23/09 02:23 PM Re: Credit Card Reform Act/OE Loans AuditorK
#Just Jay Offline
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Joined: Oct 2006
Posts: 14,390
Cheeseheadland
Anyone else as excited as I am about the new Reg Z and HELOC rules coming down today!!!! laugh laugh laugh


crazy
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#1221162 - 07/23/09 02:58 PM Re: Credit Card Reform Act/OE Loans #Just Jay
AuditorK Offline
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Joined: Feb 2003
Posts: 962
PA
Personally, I think they can stick any more regulatory revisions where the sun doesn't shine!

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#1221172 - 07/23/09 03:06 PM Re: Credit Card Reform Act/OE Loans AuditorK
MarieR Offline
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Joined: Nov 2005
Posts: 614
Amen
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#1221200 - 07/23/09 03:28 PM Re: Credit Card Reform Act/OE Loans MarieR
mbernard Offline
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Joined: Jul 2008
Posts: 109
I know this is a CU stand point, but it might help out a little. Some ideas I hadn't thought of yet...


WCUL’s Recommendation for Complying with the 21 day Requirement under the Credit CARD Act

July 21, 2009


As you all know, the Credit CARD Act requires that credit unions send periodic statements on all open end loans at least 21 days in advance of the due date. This requirement goes into effect on August 20.

The League participated in a national conference call among leagues to brainstorm ideas for credit unions to comply with the rule.

I am pleased to tell you that not only did a potentially workable solution come out of that teleconference, but that the solution was one generated at the League’s most recent Compliance Council meeting. Way to go Washington credit unions!

So, what’s the recommendation?

In short, the recommendation is to change the due date on your open end lending products to the end of the month (such as the 28th), but do not change your member’s payment date. This will effectively give your members a due date extension and therefore be to their benefit.

So, for a loan with a due date on the 15th, where your member pays by automatic transfer on the due date, the solution would be as follows:

On the statement mailed at the beginning of August, print a notice that the member’s due date is changing to the 28th.
Note that the date of the automatic payment will not change, but that you will not count that payment as late unless it arrives after the 28th.
Future statements must be mailed at least 21 days in advance of the due date, which is now the 28th. Statements must be mailed by the 7th.
Continue to do the automatic transfer on the 15th, unless your member changes the date him or her self

Is a Change in Terms Notice required?

No. A change in terms notice is required when any term required in the initial disclosures changes. Due date is not among those terms required by reg. Z.

What loans does this apply to? Are HELOCs an exception?

This rule applies to open end lending, whether or not it is tied to a card. There is some confusion over HELOCs, and whether these rules apply to home-secured open end loans. Some experts say that the rules to not apply to HELOCS, some experts say the rules do apply to HELOCs. The applicability to HELOCs is not specifically mentioned in the rules.

At this time, because of the potential for large regulatory penalties and consumer lawsuits, the League is recommending that credit unions treat these rules as applying to ALL open end lending, including HELOCs.

What does this do to the interest charged?

This change should have no effect on the interest calculations. Your credit union will still need to credit the payments received to the loan balance when they are received, if those payments come in several weeks before the due date, so much the better.

Because these loans are open ended, members have the ability to control how much interest they pay (they can pay the loans off early). It may not be typical that your members do pay early, but because of the open ended nature of the loans, they have that ability.

Doesn’t this mean I am giving my members a ‘free ride’ for a month?

Yes. In order to use this method of coming into compliance your credit union will have to accept payments after your member’s former due date and count them as timely as long as they are received by the new due date. This may be a ‘free ride’ period of a day or two, or it may be up to an entire month.

One thing to keep in mind though, is the Credit CARD Act does not allow credit unions to treat payments as late unless statements were mailed out 21 days in advance of the due date. Few credit unions will be able to meet that deadline by August 20. The cost of the ‘free ride’ period required by this method must be weighed against the cost of not treating payments as late, or the cost of non-compliance.

What about members who pay bi-weekly? Weekly? Semi-monthly?

For these members, the first task is to look at your loan contract. If you have followed the League’s and CUNA’s past advice, the payment arrangement is a separate agreement from the loan. I mean, your loan has a minimum monthly payment, but you have a separate agreement with your member to transfer money more frequently. If this is the case, the due date changes, but the payment agreement does not. This change should be as transparent to your member as it is to those who pay monthly.

If on the other hand your loan is written so that it has multiple due dates a month, you will have a much more difficult task. Probably the simplest solution to this dilemma is to re-write the loan with a monthly due date and have a separate agreement with a more frequent payment date. Re-writing loans, however, generally cannot be done without the consent of the member. Your credit union may need to provide an additional incentive to these members.

What about open ended loans that are currently delinquent?

These loans will also have to be given the due date extension. Your credit union will not be able to treat the payments due on those loans as missed until after the new due date. If we take our hypothetical loan above and assume that it is already 60 days past due, the extension of due date till the 28th will mean that when your member misses his or her September payment, the loan will be 74 days past due, instead of 90. This is, of course, a cost but that cost must be weighed against the cost of non-compliance.

Can I just not modify my loans and not charge late fees?

The Credit CARD Act prohibits treating payments as late unless the periodic statement was mailed out 21 days before the due date. This means that not only can the credit union not charge a late fee, but it also cannot report the member to the credit bureau, it cannot increase the APR, and it may not even be able to treat the loan as delinquent in any way.

Can I just print the next due date on the current statement? Like on the statement mailed in early August, print the August date and the September date?

This solution may work, but it goes against the spirit of the law and regulation. This idea also breaks down when we are considering a line of credit that a member takes advances on. Not only will the minimum payment change for September with August transactions, but statements are required to have transactions noted on them. Billing practices would have to radically change for this solution to be feasible for loans where members can take advances.

What if my credit union isn’t ready to decide what to do yet?

The Federal Reserve Board has provided informal guidance that credit unions may for “a short period of time” put a message on their open end lending statements that informs members that irrespective of the due date on their statements, payments will not be considered late unless they are made after 21 days beyond the post mark of the statement.

This guidance is not in the law or the rules, it is unofficial. It refers only to action by the Federal Reserve Board, not outside parties (such as consumer protection attorneys).

So just what is the cost of non-compliance?

The Act has penalties built in. Each violation carries a penalty equal to the finance charge on the statement in question. This penalty has a minimum of $500 per infraction and a maximum of $5,000. So, if your credit union has 1000 open end loans and it does not meet the August 20 deadline, its penalty could range from $500,000 to $5,000,000.

Also, this is a new regulation with a short implementation period. It is likely that there are attorneys out there waiting for the deadline to pass unnoticed by your credit union. Class action lawsuits are possible. Because of the nature of credit union’s multi-featured open end lending plans, credit unions are the financial institutions most affected by this new law. Banks do not typically have the number of open ended loans credit unions do. This means that, in contrast to many other consumer protection regulations, attorneys will not be suing banks. They will be going after credit unions.

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#1221229 - 07/23/09 03:40 PM Re: Credit Card Reform Act/OE Loans mbernard
ahkcompliance Offline
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Joined: Sep 2008
Posts: 2,470
Midwest
We are working to determine what we need to do. I think we are going to have to change our payment due date. They statements print off with the regular accoutn statement. Currently payments are due 15 days after the stataement date and have 10 day grace period before any late fees. Does it seem to easy just to extend the payment date by 8 or 9 days?

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#1221434 - 07/23/09 06:02 PM Re: Credit Card Reform Act/OE Loans mbernard
CompED123 Offline
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Joined: Feb 2008
Posts: 24
Montana
Thank you mbernard. Very helpful in procedural ideas (even though it's from a CU) :}

One question to all that may still be listening and haven't given up!!!

In regards to: So, what’s the recommendation?
In short, the recommendation is to change the due date on your open end lending products to the end of the month (such as the 28th), but do not change your member’s payment date. This will effectively give your members a due date extension and therefore be to their benefit.

Could we state "due date on 10th of the month with a final due date of the 25th of the month in which, on said final date, a late charge of 5% of the late payment amount will be applied? This is for our LOC loans tied to a consumer's deposit account for the benefit of covering O/D.

Hopefully I worded this ok.

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#1221544 - 07/23/09 07:14 PM Re: Credit Card Reform Act/OE Loans CompED123
ahkcompliance Offline
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Joined: Sep 2008
Posts: 2,470
Midwest
I know the compliance date is 8/20/09, what happens if a payment due date is 8/20/09 so does that mean the statement will need to be provided 21 days before that?

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#1221557 - 07/23/09 07:22 PM Re: Credit Card Reform Act/OE Loans ahkcompliance
ahou Offline
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ahou
Joined: Aug 2002
Posts: 3,094
You must comply with respect to stmt mailed on or after 8-20-09. These would have a due date of 9-10 or after.
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#1221567 - 07/23/09 07:29 PM Re: Credit Card Reform Act/OE Loans ahou
ahkcompliance Offline
Diamond Poster
Joined: Sep 2008
Posts: 2,470
Midwest
Thanks, that is what I thought but second guessed myself.

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#1221590 - 07/23/09 07:49 PM Re: Credit Card Reform Act/OE Loans ahkcompliance
complygirl Offline
Platinum Poster
Joined: Oct 2004
Posts: 822
midwest
When we discuss days, is this calendar days or business days? Thanks.

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#1221634 - 07/23/09 08:31 PM Re: Credit Card Reform Act/OE Loans complygirl
ahou Offline
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ahou
Joined: Aug 2002
Posts: 3,094
calendar
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#1221733 - 07/23/09 10:20 PM Re: Credit Card Reform Act/OE Loans ahou
Tesla Offline
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Joined: Nov 2003
Posts: 3,687
I think I understand this now. We do not have a grace period. The payment is due on the due date. We have a courtesy period of 10 days where the borrower is not charged a late fee, BUT continues to accrue interest. So to avoid the late charge and additional finance charges, the borrower must pay the statement by the due date and we must mail the statement 24 days (including the safe harbor) prior to the payment due date.

Is this correct?
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#1221748 - 07/23/09 11:12 PM Re: Credit Card Reform Act/OE Loans Tesla
Dolly Nugent Offline
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Dolly Nugent
Joined: Nov 2000
Posts: 1,820
Southern California
A creditor is required to provide the due date for a payment, if a late fee may be imposed. In the example you provided, the due date is the contractual due date, not the end of the "courtesy period." The statement must be delivered 21 (or 24 days with a safe harbor) before the contractual due date.
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#1221750 - 07/23/09 11:29 PM Re: Credit Card Reform Act/OE Loans Dolly Nugent
Dolly Nugent Offline
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Dolly Nugent
Joined: Nov 2000
Posts: 1,820
Southern California
As for HELOCs, Section 163 of TILA requires creditors to adopt reasonable procedures designed to ensure that periodic statments issued in connection withall REGULATION Z-COVERED CREDIT ACCOUNTS are mailed or delivered to consumers not later than 21 days before the payment due date.

Go to this link and do a search using "21 days" and you will see that this applies to all open-end credit ~~ not just credit cards.


http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20090715a1.pdf
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Opinions expressed are my own.

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#1221899 - 07/24/09 01:51 PM Re: Credit Card Reform Act/OE Loans Dolly Nugent
Tesla Offline
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Joined: Nov 2003
Posts: 3,687
Originally Posted By: Dolly Nugent
A creditor is required to provide the due date for a payment, if a late fee may be imposed. In the example you provided, the due date is the contractual due date, not the end of the "courtesy period." The statement must be delivered 21 (or 24 days with a safe harbor) before the contractual due date.


So, I got it! Thanks!
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#1222516 - 07/24/09 08:48 PM Re: Credit Card Reform Act/OE Loans Tesla
MHuff Offline
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Joined: Nov 2006
Posts: 218
LA
In a teleconference today about the CARD changes, the instructor made a comment about a "loop hole" in the rules. She said that if you do not charge a late fee, you do not have to worry about the 21-day billing period. Is this correct??
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