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FRB ISSUES FINAL REVISION TO REG. Z COMMENTARY ON CREDIT CARDS

The Federal Reserve Board (FRB) has issued its final rule revising the official staff commentary to Regulation Z, the implementing regulation to the federal Truth in Lending Act (TILA). The revisions clarify the status of certain credit card‑related fees and update provisions regarding the issuance of credit cards intended to supplement but not replace an existing card. The final rule was adopted as proposed (see December 6, 2002 Alert), except that the proposed comment regarding expedited payment fees was not adopted. In addition, the FRB is continuing to gather information about overdraft or “bounced check” protection services and did not address these services in this final rule.

The proposed revision provided that an expedited payment fee should be disclosed as an “other charge,” provided that the method of payment was not authorized in advance as the regular payment method for the account. However, financial institutions that commented on the proposal argued that the fee should not be disclosed as either a finance charge or an “other charge” under TILA, but instead should be considered separate from the credit plan as though it were imposed by a third party courier or wire transfer service. Based on these letters, the FRB concluded that an expedited payment fee, as described in the proposal, does not meet the standard for treatment as an “other charge.” The final rule didnot adopt the proposal classifying the fee as an “other charge”; instead the final commentary provides that creditors are not required to disclose the fee until the service is requested by a customer.

The final rule also clarifies that an expedited card delivery fee, which is imposed when the customer requests delivery of the card other than by the standard mail service generally available to customers, would not need to be disclosed either as a “finance charge” or as an “other charge.”

Finally, the rule provides guidance regarding replacement cards issued in different sizes and formats that are intended only to supplement, but not replace, an existing, traditional credit card. Under certain prescribed circumstances, card issuers now can replace an accepted card with more than one renewal or substitute card on the same accounts.

Based on comments received, the FRB staff plan to recommend to the FRB amendment of the unsolicited card rule to permit the issuance of additional cards on existing accounts outside of renewal or substitution under certain circumstances.

The final rule is effective April 1, 2003, with mandatory compliance required by October 1, 2003.

Judy Scheiderer and Deborah Freye