OTS AND FRB PROPOSE RULES ON UNFAIR AND DECEPTIVE PRACTICES
The Office of Thrift Supervision (OTS) and Federal Reserve Board (Board) today issued proposed rules on unfair or deceptive acts or practices that violate the Federal Trade Commission Act. The Board also is issuing separate proposals under the Truth in Lending Act and the Truth in Savings Act. Those proposals, as well as more detailed information on the UDAP proposals, will be the subject of future Alerts.
According to an OTS summary, the practices addressed in the proposed rules include:
- Reasonable Time to Make Payments: Institutions would be prohibited from treating a payment as late unless consumers have been provided with a reasonable amount of time to make payment. The rule would provide a safe harbor for institutions mailing statements 21 days before the payment due date.
- Payment Allocation: When different APRs apply to different balances, institutions would be prohibited from allocating any amounts paid in excess of the minimum payment in a manner that is less beneficial to consumers than one of three methods (e.g., applying the entire amount first to the balance with the highest APR or splitting the amount equally among the balances). Institutions would be required to allocate payments so that consumers fully benefit from promotional rates and deferred interest.
- Rate Increases on Outstanding Balances: Institutions would be prohibited from increasing APRs on outstanding balances unless certain exceptions apply (e.g., an institution could increase a variable rate if a promotional rate has expired or if a cardholder’s payment is delinquent).
- Fees from Credit Holds: Institutions would be prohibited from assessing a fee if a consumer exceeds a credit limit because a hold was placed on the available credit, unless the amount of the transaction would have exceeded the credit limit in any case.
- Balance Computation Methods (“Double-Cycle Billing”): Institutions would be prohibited from computing finance charges on outstanding balances based on balances in billing cycles preceding the most recent billing cycle.
- Fees/Deposits Charged to Account for Issuance of Credit: Institutions would be prohibited from charging to the credit card account fees or security deposits for the issuance or availability of credit (such as account-opening fees or membership fees) if those fees or deposits utilize the majority of the available credit on the account. Fees or deposits that exceed 25% of the credit limit would be required to be spread over the first year, rather than charged as a lump sum at account opening. Institutions would not be prohibited from issuing credit cards that require a consumer to pay a security deposit if that deposit is not charged to the account.
- Firm Offers of Credit: Institutions making firm offers of credit that advertise multiple APRs or credit limit ranges would be required to disclose in the solicitation the factors that determine whether a consumer will qualify for the lowest APR and highest credit limit advertised.
The proposed rules also will regulate practices relating to overdraft programs. Overdraft fees would be prohibited (i) unless the consumer has the opportunity to opt out of overdraft payments and (ii) if the overdraft results solely from a hold on funds.
Upon publication in the Federal Register, the notice will be open for public comment for 75 days. The agencies expect to finalize the rule by the end of the year.
Please contact us with any questions or if you would like a copy of the proposed rules.