e-Weekly
October 7, 2009
Fed Issues Proposed Rules Amending Reg Z to Implement Credit Card Act
On September 29, 2009, the Federal Reserve Board proposed rules amending Regulation Z (Truth in Lending) to protect consumers who use credit cards from a number of potentially costly practices.
Among other things, the proposed rule would:
· Protect consumers from unexpected increases in credit card interest rates by generally prohibiting increases in a rate during the first year after an account is opened and increases in a rate that applies to an existing credit card balance.
· Prohibit creditors from issuing a credit card to a consumer who is under the age of 21 unless the consumer has the ability to make the required payments or obtains the signature of a parent or other cosigner with the ability to do so.
· Require creditors to obtain a consumer's consent before charging fees for transactions that exceed the credit limit.
· Limit the high fees associated with subprime credit cards.
· Ban creditors from using the "two-cycle" billing method to impose interest charges.
· Prohibit creditors from allocating payments in ways that maximize interest charges
In December 2008, the Federal Reserve adopted final regulations prohibiting unfair credit card practices and improving the disclosures consumers receive in connection with credit card accounts. This proposal would amend aspects of those regulations to incorporate provisions of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit Card Act), which was enacted in May 2009.
The proposed rule represents the second stage of the Federal Reserve's implementation of the Credit Card Act. On July 15, 2009, the Board issued an interim final rule implementing the provisions of the Credit Card Act that went into effect on August 20, 2009. The proposed rule would implement the provisions that go into effect on February 22, 2010. The remaining provisions of the Credit Card Act go into effect on August 22, 2010 and will be implemented by the Federal Reserve at a later date.
Unexpected Drop in Credit Union Savings in August, Loans Up
Credit union savings balances unexpectedly declined in August, while loans grew slightly, according to a Credit Union National Association (CUNA) economist's analysis of CUNA's monthly sample of credit unions.
Credit union savings balances declined 0.5% in August, but grew 8.3% to $755.1 billion during the first eight months of 2009.
In August, money market accounts led savings growth with a 1.4% increase, followed by individual retirement accounts (1.2%). One-year share certificates declined 0.7%, while regular shares and share drafts declined 1.6% and 2.1%, respectively.
"Credit union savings balances fell a surprisingly large 0.5% in August, reversing the surge in savings balances seen this year," Steve Rick, CUNA senior economist, told News Now. "We typically see a seasonal savings decline of 0.46% in August as members withdraw funds for vacations and back-to-school shopping. But we had been seeing a strong underlying trend of monthly growth in savings of around 0.8%.
"Year-to-date credit union savings balances are up 8.3%, compared to a 5.8% gain for the similar period last year," he added. "Given the savings pace so far, credit unions could end up posting a 10% increase in savings balances this year, the fastest pace since the 11.3% posted in 2002."
Credit union loans outstanding increased 0.7% to $590.5 billion during August and 1.7% during the first eight months of 2009, down from a 5.1% increase during the same period in 2008.
During the month, credit card loans led loan growth, rising 1.6%, followed by unsecured personal loans (1.4%) and home equity loans (1.3%). New-auto loans, used-auto loans, and other loans each increased 0.7%, while fixed-rate and adjustable-rate mortgages increased 0.6%. Other mortgages decreased 0.8%.
"Loan balances grew a modest 0.7% in August, slower than the 1% pace set last August," Rick said. "Credit union members are still hesitant to take on new credit due to worries of possible job losses. The government's ‘Cash for Clunkers' program did reverse a nine-month slide in new-auto lending.
"Credit unions posted a 0.73% increase in new-auto loan balances in August, up from no growth last August," he added. "The program probably pulled forward new-auto demand, so we expect a sharp drop in new-auto lending for the next few months."
Visa to Congress: Ignore merchant interchange claims
Visa has become the latest financial institution to weigh in on the interchange debate, saying that legislators and the public should not be swayed by the dramatic delivery by 7-Eleven executives of 15,000 booklets of signatures supporting interchange fee reforms.
The comments from Visa, reported recently in CardLine, echo the sentiments of the Credit Union National Association (CUNA) and other members of the electronic payment coalition. According to Visa, the merchants push toward interchange fee legislation is more about retailers looking to take advantage of consumers by having them help shift the burden of business costs onto themselves in the form of surcharges. Changing the current interchange fee structure would limit consumer options, competition and technological innovation, according to CUNA.
CardLine cited Visa research which found that 78% of consumers said that the benefits of accepting credit and debit cards outweigh the costs of accepting them for many retailers.
A report commissioned by MasterCard found that 80% of people who signed the 7-Eleven petition "mistakenly believed" that consumers would benefit from lower interchange rates.
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