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Dreher Tomkies LLP
Attorneys at Law
2750 Huntington Center
41 South High Street
Columbus, Ohio 43215
Telephone: 614-628-8000
Fax: 614-628-1600

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The Office of Thrift Supervision (OTS) today approved final rules on unfair or deceptive acts or practices that violate the Federal Trade Commission Act. The Federal Reserve Board (Board) is expected to approve the same rules later today along with other rules affecting credit card accounts and overdraft services. These separate rules will be the subject of future Alerts.

According to the summary of the final rules, the agencies revised the proposed rules substantially. (See our Alerts dated May 2 and 13, 2008 for discussion of the proposed rules.) In the final rules, the agencies adopted five provisions designed to protect consumers who use credit cards from unfair acts or practices, which they summarized as follows:

(1) Reasonable Time to Make Payments: The agencies have adopted the proposed rule prohibiting institutions from treating a payment as late for any purpose unless consumers have been provided a reasonable amount of time to make that payment. The final rule includes the safe harbor for institutions that mail or deliver periodic statements at least 21 days before the payment due date.

(2) Payment Allocation: The agencies have adopted a revised version of the proposed rule regarding allocation of payments when different annual percentage rates (APR) apply to different balances on a consumer credit card account. The final rule requires institutions to allocate amounts in excess of the minimum payment either first to the balance with the highest APR or pro rata among the balances.

(3) Rate Increases: The agencies revised the proposed rule regarding APR increases. Institutions must disclose at account opening the rates that will apply to the account and may not increase APRs unless expressly permitted. Institutions are permitted to increase a rate (i) at the expiration of a specified period, provided that the increased rate also was disclosed at account opening, (ii) for new transactions, but only after the first year following account opening and after complying with the 45-day advance notice requirement in Regulation Z (expected to be adopted by the Board later today), (iii) for variable rates, due to the operation of an index, and (iv) when the consumer is more than 30 days delinquent.

(4) Double-Cycle Billing: The agencies have adopted the proposed rule prohibiting institutions from imposing finance charges based on balances in billing cycles preceding the most recent billing cycle as a result of the loss of a grace period. This practice sometimes is referred to as two-cycle or double-cycle billing.

(5) Financing Fees/Deposits for Issuance of Credit: The agencies have adopted a revised version of the proposed rule regarding the financing of security deposits or fees for the issuance or availability of credit (such as account-opening fees or membership fees). The final rule prohibits institutions from financing such deposits or fees if those deposits or fees consume the majority of the available credit on the account during the first year after account opening. In addition, security deposits and fees that consume more than 25% of the credit limit must be spread over no less than the first six months, rather than charged as a lump sum during the first billing cycle.

The agencies are not taking action at this time on the proposed rules addressing (i) holds placed on available credit or (ii) firm offers of credit that advertise multiple APRs or credit limits. The agencies plan to rely on case-by-case supervisory and enforcement actions in appropriate circumstances where practices regarding credit holds or firm offers of credit raise unfairness or deception concerns.

The agencies noted that the final rules are not intended to identify all unfair or deceptive acts or practices and that the agencies’ ability to make a determination that a particular act or practice is unfair or deceptive is not limited by the fact that such act or practice is not addressed in the final rules.

The rules are effective July 1, 2010. However, institutions are strongly encouraged to use their best efforts to conform their practices to the final rules prior to that time. Please contact us with any questions or if you would like a copy of the final rules.

Margaret Stolar and


The Federal Reserve Board recently published a proposal to amend Regulation Z to implement the provisions of the Mortgage Disclosure Improvement Act of 2008 (the MDIA), which amends the Truth in Lending Act. As explained in our Alert dated December 5, 2008, the proposed rule would revise Regulation Z’s requirements for the timing and content of disclosures for closed-end mortgage transactions secured by a consumer’s dwelling. The notice of proposed rulemaking stated that the public comment period would close on January 23, 2009. The Board is extending the public comment period by 17 days because the Paperwork Reduction Act requires a 60-day comment period.

Comments now must be received by February 9, 2009.

Judy Scheiderer