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#63563 - 02/25/03 07:29 PM Unsolicited Debit Cards for HELOCS
Anonymous
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We are going to begin making DEBIT cards available to our customers that could be used to access their HELOC. The cards could be used in place of the checks we currently provide. My question is: Can we send out these cards to existing HELOC customers unsolicited? It would then be the customer's choice to activate them or not. These would be considered debit cards not credit cards. Any input or information will be appreciated.

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#63564 - 02/25/03 07:33 PM Re: Unsolicited Debit Cards for HELOCS
Dan Persfull Offline
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Maybe I'm confused, but if they are being used to access a line of credit (other than an overdraft line of credit tied to a DDA), how are they debit cards?
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#63565 - 02/25/03 07:34 PM Re: Unsolicited Debit Cards for HELOCS
1111 Offline
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1111
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The EFTA permits the unsolicited issuance of debit cards, but only if disclosures are given and the card is not usable until after the consumer has requested validation and the consumer's identity has been verified.

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#63566 - 02/25/03 07:55 PM Re: Unsolicited Debit Cards for HELOCS
rlcarey Online
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rlcarey
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These will be consider credit card access devices - not debit cards! Refer to 226.9 regarding the issuance of supplimental credit devices.
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#63567 - 02/25/03 08:11 PM Re: Unsolicited Debit Cards for HELOCS
Anonymous
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The DDA account they are tied to does function like an overdraft line..it is however a HELOC. The DDA account is set up specifically for these transactions.

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#63568 - 02/25/03 08:32 PM Re: Unsolicited Debit Cards for HELOCS
rlcarey Online
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rlcarey
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It's just a shadow account - right? They don't make separate deposits and carry a balance in the DDA account - right? If those two statements are correct, then it is a credit access device - you are just using your DDA system for processing only.
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#63569 - 02/25/03 08:40 PM Re: Unsolicited Debit Cards for HELOCS
Anonymous
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Yes the DDA account is only a shadow account used for processing..if that identifies it as a credit card then, I'm pretty clear on the direction to take. Thank you.

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#63570 - 02/25/03 08:45 PM Re: Unsolicited Debit Cards for HELOCS
Dan Persfull Offline
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Lucylle, our HELOCs are also tied to the DDA, but as Randy stated, it is strictly for processing the HELOC transactions. It is not a DDA, it is simply a credit product processed through our DDA system.

These cards will be credit devices, regardless whether you refer to them as Debit, Credit, Home Access, etc. Cards.
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The opinions expressed are mine and they are not to be taken as legal advice.

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#63571 - 02/25/03 09:48 PM Re: Unsolicited Debit Cards for HELOCS
1111 Offline
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1111
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Quote:

These cards will be credit devices, regardless whether you refer to them as Debit, Credit, Home Access, etc. Cards.




So, you are saying that simply due to the fact that the Debit Card is accessing a HELOC, that makes it a credit card? Is an overdraft line of credit not a line of credit? If it's a line of credit, why is a debit card not also a credit card? If the debit card is a credit card, based on accessing a HELOC, what happens if there is a dispute, say relating to a POS transactions? The POS entry cannot be returned as the merchant was presented a Debit Card - regardless of what happens inside the bank, correct?

The credit card interpretation posted here would not be aligned with what happens in the real world.

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#63572 - 02/25/03 09:59 PM Re: Unsolicited Debit Cards for HELOCS
rlcarey Online
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Quote:

Is an overdraft line of credit not a line of credit? If it's a line of credit, why is a debit card not also a credit card?




The answer to that is that a debit card can be a credit card - nobody said this was easy

See Reg Z commentary at 226.2(a)(15)comment 2:

2. Examples. i. Examples of credit cards include:
A. A card that guarantees checks or similar instruments, if the asset account is also tied to an overdraft line or if the instrument directly accesses a line of credit.
B. A card that accesses both a credit and an asset account (that is, a debit-credit card).
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#63573 - 02/25/03 10:06 PM Re: Unsolicited Debit Cards for HELOCS
rlcarey Online
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rlcarey
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Galveston, TX
Quote:

If the debit card is a credit card, based on accessing a HELOC, what happens if there is a dispute, say relating to a POS transactions? The POS entry cannot be returned as the merchant was presented a Debit Card - regardless of what happens inside the bank, correct?

The credit card interpretation posted here would not be aligned with what happens in the real world.




For an answer to this question you need to refer to 226.13(i):

Relation to Electronic Fund Transfer Act and Regulation E. If an extension of credit is incident to an electronic fund transfer, under an agreement between a consumer and a financial institution to extend credit when the consumer's account is overdrawn or to maintain a specified minimum balance in the consumer's account, the creditor shall comply with the requirements of Regulation E, 12 CFR 205.11 governing error resolution rather than those of paragraphs (a), (b), (c), (e), (f), and (h) of this section.
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#63574 - 02/25/03 10:28 PM Re: Unsolicited Debit Cards for HELOCS
1111 Offline
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1111
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rlcarey:

Thanks for the input, but I'm wondering about the merchant - he/she accepts a Debit Card (that is clearly marked as a Debit Card and processed as a Debit Card by the merchant), but due to a dispute under Credit Card rules, the item is charged back. Is this not deceptive dealings at best?

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#63575 - 02/26/03 12:21 AM Re: Unsolicited Debit Cards for HELOCS
rlcarey Online
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rlcarey
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They won't and can't be charged back to the merchant under credit card rules - don't confuse the regulatory classifications with VISA processing rules - they aren't the same. Additonally, they would be handled from a bank perspective under the Reg E dispute rules according to my previous post.
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#63576 - 02/26/03 02:08 PM Re: Unsolicited Debit Cards for HELOCS
SteveG Offline
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Posts: 58
Also don't forget that this can be a state law issue ... I believe that some prohibit Heloc access by plastic.

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#63577 - 02/26/03 03:36 PM Re: Unsolicited Debit Cards for HELOCS
Dan Persfull Offline
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Bloomington, IN
Randy, thanks for covering Ipso's questions. I didn't get back into the thread until this morning and you have already very adequately addressed the scenario.
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The opinions expressed are mine and they are not to be taken as legal advice.

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#63578 - 03/20/03 12:29 AM Re: Unsolicited Debit Cards for HELOCS
DebbieC Offline
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Joined: Jul 2001
Posts: 66
Owensboro, KY USA
We're considering this type of product. I have been fighting the battle that a debit card tied to a shadow deposit account is indeed a credit card. Since we contract our credit card activity, we are restricted by contract NOT to offer credit card products to our customers. If we do not allow normal DDA activity in the checking account, I feel we are breaching our contract. Based on my screaming, our product development team has decided to allow deposit, checks and ACH activity on the DDA, but they want to set a zero target balance on the DDA. This would make all checks and ACH debits pull funds from the HELOC and deposits to the checking would actually be principal payments to the HELOC. I have two questions.

By allowing normal checking activity in a zero balance checking will this make our card a debit card?

AND When we market this product, would we not be required to advertise it as a zero balance checking tied to a HELOC?

I'm extremely uncomfortable with this and will greatly appreciate any advise.


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#63579 - 03/20/03 01:53 AM Re: Unsolicited Debit Cards for HELOCS
rlcarey Online
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rlcarey
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Galveston, TX
Since all advances on the "so called debit card" would result in an advance from the line - it would be a credit card under Reg Z as it's sole purpose is to serve as an access device to the HELOC. Walks like a duck, quacks like a duck, so even if you dress it up in the chicken suit, it's still a duck.

However, you may want to contact your credit card vendor, as I don't believe these normally fall in the the "prohibition" against issuing your own credit card product as it's just an access device to a HELOC. If that was prohibited so would all your other debit cards that you have if you also have an overdraft line of credit product tied to the underlying checking account (Those are credit cards under Reg Z also).
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com

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#63580 - 04/03/03 12:57 AM Re: Debit Cards for HELOCs
Anonymous
Unregistered

I understand that the plastic in this case is considered a credit card (the key here is the word "incidental" in Visa's rules). But we want it to function as a debit card for processing purposes, essentially overdrawing a zero-balance DDA and creating an advance from the HELOC which resides on our loan side, instead of hitting a credit card statement. The borrower then makes a loan payment rather than a credit card payment. We have separate processors for debit and credit, and they are bouncing us back and forth. It has been suggested we set up a credit card account, then manually post the checks as cash advances-lots of work and the balance would not be tied to our in-house loan system. OR process checks on the loan side, card transactions on the credit card side, then suppress the credit card statement and manually post those transactions back to the loan.
We'd like to issue cards on existing HELOCs already using checks, but we can't figure out the functionality. Is anyone using both cards and checks to access the same line?
In reference to the debit chargeback comment, you do have chargeback rights under Visa rules if it's processed as credit.

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#63581 - 04/03/03 03:06 AM Re: Debit Cards for HELOCs
rlcarey Online
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rlcarey
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Galveston, TX
I think you are making a mountain out of a mole hill here. Don't confuse VISA's definition and processing rules of a debit/credit card with the definitions and error resolution rules found in Reg E and Reg Z. They are not terribly compatible in the situation you are describing. Most banks that I know of run "shadow" DDA accounts to process checks and card transactions to their HELOCS.
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