The Credit Cardholders' Bill of Rights Act of 2008, H.R. 5244, would amend the federal Truth in Lending Act, while the Office of Thrift Supervision and the Federal Reserve Board announced proposed regulations that would prohibit certain practices deemed to be unfair practices regarding credit cards. The regulations would apply to all savings associations and banks. Further, a bill similar to the House Bill is expected to be introduced by Senator Chris Dodd in the near future. Daniel J. Laudicina and Clayton C. Swears of Hudson Cook, LLP examine how each proposal addresses specific issues relative to current credit card lending practices. They write:
Universal default, also known as adverse action pricing, is a practice by lenders of imposing an interest rate increase or change in terms based on adverse information unrelated to that lender’s credit card account with the borrower. The adverse information which the lenders act upon is information related to the borrower’s accounts with other lenders. For example, Lender A may change the terms of a loan from the normal terms to the default terms (i.e. the terms and rates given to those who have missed payments or otherwise defaulted on a loan) when Lender A is informed that their customer has defaulted with Lender B, even though the customer has not defaulted with Lender A.
• House Bill. Lenders would be prohibited from using adverse information relating to accounts with other lenders to increase the interest rate applicable to the currently existing balance of the account. The bill does not prohibit a lender from using adverse information to increase the interest rate on new balances incurred going forward.
• Expected Senate Bill. Lenders would be prohibited from increasing the interest rates on cardholders in good standing for reasons unrelated to the cardholder’s behavior with respect to that card.
• Agency Regulations. Institutions would be prohibited from increasing the interest rate on any pre-existing balance unless (1) the increase is due to the termination of a promotional rate; (2) the increase is due to changes in an index; or (3) the minimum payment was not received within 30 days after the due date.
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Some lenders that offer subprime credit cards charge large up-front fees and/or use a relatively large portion of the credit limit to pay fees, leaving little available credit to the borrower.
• House Bill. Other than overlimit fees and late fees, if a lender would charge fees in excess of 25% of the credit limit in the first year, the card may not be opened until the fees are paid in full. The fees may not be paid using the credit card.
• Agency Regulations. Institutions would be prohibited from financing security deposits or fees for the issuance or availability of credit if those deposits or fees utilize the majority of the available credit on the account. However, that prohibition does not apply to fees that are not charged to the account. If the fees charged to the account exceed 25% of the initial credit limit, they must be spread out over the first year.
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Each of the proposals includes requirements with respect to when payments are deemed to have been received for purposes of determining the timeliness of payments.
• House Bill. If a consumer sends a payment no less than seven days before the statement’s due date, as evidence by the consumer’s mailing receipt, the payment is presumed to have been made by the due date.
• Expected Senate Bill. Lenders would be prohibited from setting early morning deadlines for credit card payments. Lenders are also prohibited from charging late fees if the lender delayed crediting the payment. Payments made at local branches must be credited the same day.
• Agency Regulations. Regulation Z would be amended to provide that mailed credit card payments received by 5 p.m. on the due date would be considered timely. In addition, if a lender does not receive or accept mailed payments on the due date, a payment received by mail on the next business day would be considered timely.
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