July 1 Truth-in-Lending Requirements

Carl Roer, CLC Regulatory Comment Committee Member
June 4, 2010 | COMMENTS

Effective July 1, credit unions will have new requirements for: periodic statement changes, account opening disclosure changes, and underwriting changes.

For statements, credit unions must give periodic statements on all open-end loans, whether or not they are home secured. The statements must have: previous balance, identification of transaction, credits, periodic rates, and balance on which finance charge was computed. They must also have charges imposed, interest, fees, grace period, address for notice of billing errors, and closing date of billing cycle. Credit card statements must have the late payment disclosure and warning, and minimum payment disclosures and warnings that were effective February 22.

For account opening disclosures for open-end non home-secured plans, these disclosures must be in tabular format. The table must include: each APR used in 16-point font, penalty rate, fees for issuance or availability, fixed finance charge or minimum interest charge, transaction charges, grace period, and balance computation method. The table must also include fees for member behavior, such as cash advance, over limit, late payment, balance transfer, or returned payment.

For underwriting open-end loans, the new rules prevent credit unions from individually underwriting advances. Under the new regulation, to qualify as an open-end plan, the lender must: reasonably contemplate repeated transactions, impose a finance charge from time to time, and consider the line of credit to be reusable. The main change here is in the interpretation of a reusable line of credit. Under the new rule, a lender cannot underwrite individual advances because that would be seen as a non-renewable line. A credit union may have the following options for change: discontinue multi-featured open-end lending and move to closed-end, use closed-end advances under an open-end plan (there is some disagreement about whether this is compliant), or verify information rather than underwriting for large advances.

Also, coming August 22, credit card fees such as the late fee will be required to be “reasonable and proportional.” The Federal Reserve is expected to shortly provide additional guidance on this.