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Regulation Aa


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January 2009 Presentation

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Regulation Aa

  1. 1. Plastic Card Regulatory Update Mary Sroufe Washington Credit Union League
  2. 2. New (or Updated) Regulations <ul><li>Unlawful Internet Gambling Enforcement Act </li></ul><ul><li>Regulation AA </li></ul><ul><ul><li>Unfair or Deceptive Acts or Practices </li></ul></ul><ul><li>Regulation Z </li></ul><ul><ul><li>Truth in Lending (Open Ended) </li></ul></ul>
  3. 3. Unlawful Internet Gambling Enforcement Act <ul><li>Goes into effect December 1, 2009 </li></ul><ul><li>Requires participants in designated payment systems to identify and block or otherwise prevent restricted transactions. </li></ul><ul><ul><li>Restricted transactions are those transactions involving any credit, funds, instrument, or proceeds transmitted in connection with the participation of a person in unlawful internet gambling </li></ul></ul>
  4. 4. Unlawful Internet Gambling Enforcement Act <ul><li>Participants are operators, financial transaction providers, and third party providers. </li></ul><ul><li>Card systems (debit, credit, stored-value, and pre-paid) are considered a designated payment system for the purpose of this regulation </li></ul>
  5. 5. Unlawful Internet Gambling Enforcement Act <ul><ul><li>Participants must establish and implement written policies and procedures reasonably designed to identify and block (or prohibit) restricted transactions </li></ul></ul><ul><ul><li>However, participants can rely on policies and procedures provided by the operator of the system in certain circumstances </li></ul></ul>
  6. 6. Unlawful Internet Gambling Enforcement Act <ul><li>Participants can rely on an operator’s policies and procedures if: </li></ul><ul><ul><li>The operator provides a written statement that the operator has structured the system’s policies to comply with the rule, AND </li></ul></ul><ul><ul><li>The participant has not received notice from the operator’s federal regulator that the policies are not in compliance. </li></ul></ul>
  7. 7. Unlawful Internet Gambling Enforcement Act <ul><li>Policies and procedures must: </li></ul><ul><ul><li>Provide a method of conducting due diligence, or </li></ul></ul><ul><ul><li>Implement a code system such as transaction codes that are required to accompany the authorization request for a transaction, and </li></ul></ul><ul><ul><li>Contain procedures for ongoing monitoring or testing to determine if codes are used correctly and to detect suspicious activity </li></ul></ul>
  8. 8. Unlawful Internet Gambling Enforcement Act <ul><li>When establishing a relationship with a new business customer, participants must perform due diligence. </li></ul><ul><ul><li>Determine the level of risk of engaging in internet gambling </li></ul></ul><ul><ul><ul><li>If not low, obtain a certification from business that either: </li></ul></ul></ul><ul><ul><ul><ul><li>It does not engage in internet gambling </li></ul></ul></ul></ul><ul><ul><ul><ul><li>It does engage in internet gambling, but it is legal </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Obtain documentation of legal authority </li></ul></ul></ul></ul></ul>
  9. 9. Regulation AA <ul><li>Goes into effect July 1, 2010 </li></ul><ul><li>Changes </li></ul><ul><ul><li>Payment timing </li></ul></ul><ul><ul><li>Payment allocation </li></ul></ul><ul><ul><li>Process for increasing interest rates </li></ul></ul><ul><ul><li>Billing cycle </li></ul></ul><ul><ul><li>Financing of security deposits and fees </li></ul></ul>
  10. 10. Regulation AA Payment Timing <ul><li>Financial institutions (FI) cannot consider a payment late unless the FI provides a reasonable amount of time for the consumer to make that payment </li></ul><ul><li>A safe harbor is created when a FI sends its statements 21 days prior to the payment due date </li></ul>
  11. 11. Regulation AA Payment Allocation <ul><li>When a consumer makes a payment in excess of the minimum payment it must be allocated in one of two ways: </li></ul><ul><ul><li>To the balance with the highest interest rate </li></ul></ul><ul><ul><li>Pro rata among all the balances </li></ul></ul>
  12. 12. Regulation AA Process for Increasing Interest Rate <ul><li>At account opening, disclose all rates that will apply. </li></ul><ul><li>Rate can not be changed except in limited circumstances. These are: </li></ul><ul><ul><li>Expiration of promotional period (must be disclosed at account opening) </li></ul></ul><ul><ul><li>By operation of index </li></ul></ul><ul><ul><li>With 45 day advance notice (only after first year) </li></ul></ul><ul><ul><li>Late payment (31 days or more past due) </li></ul></ul>
  13. 13. Regulation AA Billing Cycle <ul><li>Two cycle billing is prohibited </li></ul><ul><ul><li>This is when the FI calculates interest using the account balance for days in the previous cycle as well as in the current cycle (such as when the consumer pays in full one month, and then not the next). </li></ul></ul>
  14. 14. Regulation AA Financing of Security Deposits and Fees <ul><li>Primarily concerning subprime credit cards where there are high fees and low credit limits </li></ul><ul><ul><li>Initial charges cannot be financed if charges assessed during the first year would exceed 50% of the initial credit limit. </li></ul></ul><ul><ul><ul><li>Charges at account opening cannot exceed 25% of initial credit limit </li></ul></ul></ul><ul><ul><ul><li>Any additional charges must be spread evenly over at least the next 5 billing cycles </li></ul></ul></ul>
  15. 15. Regulation Z <ul><li>Goes into effect July 1, 2010 </li></ul><ul><li>Changes </li></ul><ul><ul><li>Applications and solicitations </li></ul></ul><ul><ul><li>Account-opening disclosures </li></ul></ul><ul><ul><li>Periodic statement disclosures </li></ul></ul><ul><ul><li>Procedures for increasing interest rates </li></ul></ul><ul><ul><li>Other protections </li></ul></ul>
  16. 16. Regulation Z Applications and Solicitations <ul><li>The rule requires format changes including font and the placement of information. </li></ul><ul><li>Creditors must now disclose the duration that penalty rates may be in effect </li></ul><ul><li>Disclosures about variable rates must be simplified </li></ul><ul><li>Grace period disclosures are revised </li></ul>
  17. 17. Regulation Z Account Opening Disclosures <ul><li>The format for account opening disclosures has been changed. </li></ul><ul><li>The new format requires that certain key terms be disclosed in a summary table, similar to the Schumer box used on credit card applications and solicitations </li></ul>
  18. 18. Regulation Z Periodic Statement Disclosures <ul><li>Interest charges must be grouped separately from fees, and there must be a monthly and year to date total for each. </li></ul><ul><ul><li>Interest charges must be itemized according to type of transaction (i.e. purchase or cash advance). </li></ul></ul><ul><li>The effective APR disclosure is no longer required </li></ul>
  19. 19. Regulation Z Procedures for Increasing Interest Rates <ul><li>Change in Terms notices are now required to be sent 45 days in advance, rather than 15 </li></ul><ul><li>In addition, creditors must now give debtors 45 days notice before increasing a rate due to the debtor’s default or delinquency </li></ul>
  20. 20. Regulation Z Other Protections <ul><li>An ad can only refer to a plan as having a fixed rate if the rate will not change for ANY reason during the period where the rate is fixed (if no period is specified, the life of the loan) </li></ul><ul><li>When a due date falls on a non-business day, payments received on the next business day must be considered timely </li></ul>