After being a credit card issuer for several years, we are sitting down to review our initial disclosure/terms and conditions form. Does anyone have any advice on writing this intial discolsure? Our current disclsoure seems to be wordy and repeative information. We were also wondering about the best way to handle right of set off as far as debiting a customers deposit account for obligations due under their credit card.

I can't help you with the wording and design of your disclosures, except to suggest you review some of the language used by some of the competition.

I can help with offset, however. It's really easy, because you can't do it! Set off against consumer deposits is not permitted to satisfy a credit card account in default. Take a look at Regulation Z §226.12(d):

quote:

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Offsets by card issuer prohibited.

(1) A card issuer may not take any action, either before or after termination of credit card privileges, to offset a cardholder’s indebtedness arising from a consumer credit transaction under the relevant credit card plan against funds of the cardholder held on deposit with the card issuer.

(2) This paragraph does not alter or affect the right of a card issuer acting under state or Federal law to do any of the following with regard to funds of a cardholder held on deposit with the card issuer if the same procedure is constitutionally available to creditors generally: obtain or enforce a consensual security interest in the funds; attach or otherwise levy upon the funds; or obtain or enforce a court order relating to the funds.

(3) This paragraph does not prohibit a plan, if authorized in writing by the cardholder, under which the card issuer may periodically deduct all or part of the cardholder’s credit card debt from a deposit account held with the card issuer (subject to the limitations in 226.13(d)(1)).

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Good luck!

Everyone always says you can't setoff, but even John's cite and quote say that you can under certain circumstances. Having noted that, we never setoff when we were doing cards and I haven't heard of anyone else doing so. But I've got to think someone has done it.

As to the disclosures, wordy or not it is often best to stick fairly close to the model forms as you are closest to a safe harbor doing so.

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Andy Zavoina
Opinions stated are not necessarily that of my employer.

So, Does that mean item number 3 listed above could not be enforce in the future?

I'm going to take a very rare exception to Andy's comments. The "exceptions" he suggests are in the Regulation Z citation in my earlier post aren't examples of set off. They are legal actions and court orders. "Set off" means a situation in which "I owe you $X and you owe me $Y. I'm taking as much as I can from what I owe you [$X - $Y] to satisfy your debt to me, and I'd doing it without going to court or relying on anything you signed." Usually, you'd be in default before I would use set off (but sometimes it's a consensual thing between reciprocal obligors: my grandfather used to offset his trade payables against his trade receivables when he was selling heating oil to businesses in our area)

As for the paragraph 3 scenario, it refers to an agreement a cardholder might sign to authorize the card issuer to deduct a monthly payment or account balance from the cardholder's deposit account. The deposit account need not be held by the card issuer. But the agreement would be subject to the cardholder's rights under the Billing Rights provisions in §226.13, and, like any other agreement, could be canceled by the cardholder just by revoking the authorization. As long as the authorization exists, you can continue to pull from the deposit account. But that's not a set off, and presumably, there would not have been a default unless the deposit account cupboard was bare at one time or another.

I don't think that was an exception because, while setoff is usually associated with delinquency, the original post didn't indicate that.

An arbitrary setoff for delinquency is prohibited. But the customer can say they want to get all the rebates they can and make it easy on themselves. They will charge everything possible. They may ask that the balance due be debited on a monthly basis. When I was on the loan desk I had a P&E customer who used to pre-pay the card in anticipation of charges. At times I was looking to refund the money to him he was so early.

My point is that it is impossible. It just is very rare.

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Andy Zavoina
Opinions stated are not necessarily that of my employer.

[This message has been edited by Andy Z (edited 05-05-2001).]