Source: https://www.federalregister.gov/articles/2012/04/12/2012-8534/truth-in-lending-regulation-z
Timestamp: 2015-04-27 18:29:08
Document Index: 328087367

Matched Legal Cases: ['§ 226', '§ 226', '§ 226', '§ 226', '§ 226', 'art 1026', '§ 1026', '§ 1026', '§ 1026', '§ 1026', '§ 1026', '§ 1026', '§ 1026', 'art 1026', '§ 1026', '§ 1026', '§ 1026', '§ 1026', '§ 1026', '§ 1026', '§ 1026', '§ 1026', '§ 1026', '§ 1026', '§ 1026', '§ 1026', '§ 1026', '§ 1026']

-21878 (4 pages)
Document Number: 2012-8534
Shorter URL: https://federalregister.gov/a/2012-8534 Related Topics
The Credit Card Act added TILA Section 127(n)(1), which states that “[i]f the terms of a credit card account under an open end consumer credit plan require the payment of any fees (other than any late fee, over-the-limit fee, or fee for a payment returned for insufficient funds) by the consumer in the first year during which the account is opened in an aggregate amount in excess of 25 percent of the total amount of credit authorized under the account when the account is opened,” then “no payment of any fees (other than any late fee, over-the-limit fee, or fee for a payment returned for insufficient funds) may be made from the credit made available under the terms of the account.”
On January 12, 2010, the Federal Reserve Board of Governors (Board) issued a final rule implementing new TILA Section 127(n) in 12 CFR 226.52(a).
Section 226.52(a) limits the total amount of fees that a credit card issuer may require a consumer to pay with respect to an account to 25 percent of the credit limit in effect when the account is opened. Under the January 2010 final rule, this limitation applied only during the first year after account opening.
This rule became effective on February 22, 2010.
On April 8, 2011, the Board issued a final rule expanding § 226.52(a) to apply to fees the consumer is required to pay with respect to an account prior to account opening.
The change was based on the Board's understanding that certain credit card issuers were “requiring consumers to pay application or processing fees prior to account opening that, when combined with other fees charged to the account after account opening, exceed 25 percent of the account's initial credit limit.”
The Board viewed this practice as “inconsistent with the intent of [TILA] Section 127(n)(1) insofar as it alters the statutory relationship between the costs and benefits of opening a credit card account.”
The Board's change to § 226.52(a) was scheduled to become effective on October 1, 2011.
On July 20, 2011, a credit card issuer filed a lawsuit in the United States District Court for the District of South Dakota, alleging that the Board exceeded its authority by expanding § 226.52(a) to apply to fees the consumer is required to pay prior to account opening.
On July 21, 2011, the Board's rulemaking authority to implement the provisions of TILA transferred to the Bureau pursuant to Sections 1061 and 1100A of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).
On August 5, 2011, the card issuer filed a motion for a preliminary injunction, asking the court to postpone the October 1, 2011 effective date with respect to the application of § 226.52 to fees paid prior to account opening. The district court granted the motion for a preliminary injunction on September 23, 2011. As a result of the court's order, the portion of the Board's 2011 final rule applying § 226.52(a) to pre-account opening fees has not become effective.
The interim final rule made only technical changes to Regulation Z, such as noting the Bureau's authority and renumbering Regulation Z as 12 CFR part 1026. Accordingly, the provision addressed in this proposal and in the litigation discussed above is properly cited as 12 CFR 1026.52(a).
Accordingly, effective July 21, 2011, except with respect to persons excluded from the Bureau's rulemaking authority by Section 1029 of the Dodd Frank Act, the authority of the Board to issue regulations pursuant to TILA transferred to the Bureau.
These regulations may contain such classifications, differentiations, or other provisions, and may provide for such adjustments and exceptions for any class of transactions, that in the Bureau's judgment are necessary or proper to effectuate the purpose of TILA, facilitate compliance with TILA, or prevent circumvention or evasion of TILA.
The Bureau is proposing to amend 12 CFR 1026.52(a) to resolve the uncertainty caused by the litigation discussed above. Specifically, the Bureau is proposing to amend § 1026.52(a) to provide that the limitation on credit card fees applies only during the first year after account opening. The Bureau is also proposing to make corresponding amendments to the Official Interpretations of § 1026.52(a).
In developing the proposed rule, the Bureau has conducted an analysis of potential benefits, costs, and impacts,
The proposal provides that the limitation on credit card account fees in § 1026.52(a) applies only during the first year after account opening. If the proposal is adopted, fees that a consumer is required to pay prior to account opening will not be subject to the limitation in § 1026.52(a).
The Bureau believes that the proposal, if adopted, may impose potential costs on consumers by permitting covered persons to collect fees that would be disallowed absent the proposal. Covered persons should benefit from clarification of the scope of § 1026.52(a) to resolve any uncertainty created by the litigation discussed above. The proposed rule would also permit covered persons to collect fees that would be prohibited absent the proposed rule. The Bureau does not expect the proposal to impose costs on covered persons. All methods of compliance under current law will remain available to covered persons if the proposal is adopted. Thus, a covered person who is in compliance with current law need not take any additional action if the proposal is adopted.
An IRFA is not required for the proposal because the proposal, if adopted, would not have a significant economic impact on any small entities. The Bureau does not expect the proposal to impose costs on covered persons. All methods of compliance under current law will remain available to small entities if the proposal is adopted. Thus, a small entity that is in compliance with current law need not take any additional action if the proposal is adopted. Instead, the overall effect of the proposal would be to narrow the compliance obligations under § 1026.52(a) for covered persons and to give covered persons additional certainty about how to comply with § 1026.52(a).
The collection of information, if any, in Regulation Z, 12 CFR part 1026. The information collection in Regulation Z is required to provide benefits for consumers and is mandatory.
The respondents and/or recordkeepers are creditors and other entities subject to Regulation Z, including for-profit financial institutions, small businesses, and institutions of higher education. Under § 1026.25, creditors are required to retain evidence of compliance for twenty-four months, but Regulation Z does not specify the types of records that must be maintained.
If this proposal to Regulation Z is adopted, card issuers will not be required to comply with § 1026.52(a) with respect to fees the consumer is required to pay prior to account opening. The Bureau believes that any burden associated with updating compliance under the proposed provisions is already accounted for in the previously approved burden estimates associated with the collection in Regulation Z under the Board's January 2010 Final Rule estimates. That rule imposed a similar limitation on fees.
Accordingly, for the reasons stated above, the Bureau estimates that there would not be an increase in the one-time or ongoing burden to comply with the requirements under proposed § 1026.52(a).
Although the Bureau does not believe that the proposed rule imposes any new collection of information or any increase to the previously approved estimated burden associated with the collection in Regulation Z, the Bureau solicits comment on the proposed modification to § 1026.52(a) or any other aspect of the proposal for purposes of the PRA. Comments on the collection of information requirements should be sent to the Office of Management and Budget, Attention: Desk Officer for the Consumer Financial Protection Bureau, Office of Information and Regulatory Affairs, Washington, DC 20503, or by the Internet to http://oira_submission@omb.eop.gov, with copies to the Bureau at the address previously specified.
2. In § 1026.52, revise paragraph (a) to read as follows:
prior to account opening and
during first year after account opening. (1) General rule. Except as provided in paragraph (a)(2) of this section, the total amount of fees a consumer is required to pay with respect to a credit card account under an open-end (not home-secured) consumer credit plan [ prior to account opening and ] during the first year after account opening must not exceed 25 percent of the credit limit in effect when the account is opened. For purposes of this paragraph, an account is considered open no earlier than the date on which the account may first be used by the consumer to engage in transactions.
52(a) Limitations
during first year after account opening.
i. Assume that, under the terms of a credit card account, a consumer is required to pay $120 in fees for the issuance or availability of credit at account opening. The consumer is also required to pay a cash advance fee that is equal to five percent of the cash advance and a late payment fee of $15 if the required minimum periodic payment is not received by the payment due date (which is the twenty-fifth of the month). At account opening on January 1 of year one, the credit limit for the account is $500. Section 1026.52(a)(1) permits the card issuer to charge to the account the $120 in fees for the issuance or availability of credit at account opening. On February 1 of year one, the consumer uses the account for a $100 cash advance. Section 1026.52(a)(1) permits the card issuer to charge a $5 cash-advance fee to the account. On March 26 of year one, the card issuer has not received the consumer's required minimum periodic payment. Section 1026.52(a)(2) permits the card issuer to charge a $15 late payment fee to the account. On July 15 of year one, the consumer uses the account for a $50 cash advance. Section 1026.52(a)(1) does not permit the card issuer to charge a $2.50 cash advance fee to the account. Furthermore, § 1026.52(a)(1) prohibits the card issuer from collecting the $2.50 cash advance fee from the consumer by other means. ii. Assume that, under the terms of a credit card account, a consumer is required to pay $125 in fees for the issuance or availability of credit during the first year after account opening. At account opening on January 1 of year one, the credit limit for the account is $500. Section 1026.52(a)(1) permits the card issuer to charge the $125 in fees to the account. However, § 1026.52(a)(1) prohibits the card issuer from requiring the consumer to make payments to the card issuer for additional non-exempt fees with respect to the account [ prior to account opening or ] during the first year after account opening. Section 1026.52(a)(1) also prohibits the card issuer from requiring the consumer to open a separate credit account with the card issuer to fund the payment of additional non-exempt fees [ prior to the opening of the credit card account or ] during the first year after the credit card account is opened.
[ iii. Assume that, on January 1 of year one, a consumer is required to pay a $100 fee in order to apply for a credit card account. On January 5, the card issuer approves the consumer's application, assigns the account a credit limit of $1,000, and provides the consumer with account-opening disclosures consistent with § 1026.6. The date on which the account may first be used by the consumer to engage in transactions is January 5. The consumer is required to pay $150 in fees for the issuance or availability of credit, which § 1026.52(a)(1) permits the card issuer to charge to the account on January 5. However, because the $100 application fee is subject to the 25 percent limit in § 1026.52(a)(1), the card issuer is prohibited from requiring the consumer to pay any additional non-exempt fees with respect to the account until January 5 of year two. ]
ii. Decreases in credit limit. If a card issuer decreases the credit limit during the first year after the account is opened, § 1026.52(a)(1) requires the card issuer to waive or remove any fees charged to the account that exceed 25 percent of the reduced credit limit or to credit the account for an amount equal to any fees the consumer was required to pay with respect to the account that exceed 25 percent of the reduced credit limit within a reasonable amount of time but no later than the end of the billing cycle following the billing cycle during which the credit limit was reduced. For example [: ]▸,◂
1. Covered fees. Except as provided in § 1026.52(a)(2), § 1026.52(a) applies to any fees or other charges that a card issuer will or may require the consumer to pay with respect to a credit card account [ prior to account opening and ] during the first year after account opening, other than charges attributable to periodic interest rates. For example, § 1026.52(a) applies to:
9. See First Premier Bank, et al. v. United States Consumer Fin. Prot. Bureau, et al.,— F. Supp. 2d. —, 2011 WL 4458785 (D.S.D. Sept. 23, 2011).