Final Rules Amending TILA and Consumer Leasing Act

The Federal Reserve just adopted final rules pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). The rules increase the protections of the Truth in Lending Act (TILA) by extending TILA protections from transactions under $25,000 to those under $50,000. The $50,000 threshold will now fluctuate with the consumer price index, rather than remain static.

The rules also increase disclosure required by lessors of large consumer goods, such as cars, from $25,000 to $50,000. The required disclosures for leases more than four months include information to consumers about the cost of leases.

These rules are effective July 21, 2011.

- JSM

Federal Reserve Consumer Information on Overdrafts

With its new focus on being consumer-friendly, the Federal Reserve has published a circular on what consumers need to know about the new debit card overdraft rules. Remember, as of August 15th, banks cannot include customers in their overdraft services for ATM/Debit card transactions without their opting-in. The rules apply to new accounts opened beginning July 1. The Fed has even provided a copy of the standard form disclosure that it approved for banks to use, so that consumers can (hopefully) recognize the form when they get it in the mail (see Form). With an emphasis on consumer "choice" and education, it is good to see the Fed getting the word out.

Will consumers understand what this is all about? I suspect so. Just this last week, our 20 year old baby-sitter commented that she wished her bank, Chase, would follow Bank of America and give up on overdraft fees (See Hooray for Bank America). Apparently the word has gotten out positively for BOA. She'd been hit $35 on a debit card overdraft of less than $5. Expensive lesson, yes, but just one example where the new rules will help. Better to be denied at the counter, rather than get the hefty fee. I told her not to worry, the new rules are coming soon.

- JSM

New Credit Card Rules Go Into Action

Happily, the CARD act provisions are in full effect now. So, what to look for on your statements? I think the disclosure about how long it will take you to pay off your credit card if you only pay the minimum is helpful, especially when coupled with how much you need to pay in order to pay off the debt in just three years. But, consumers must actually read the statements to get the disclosure . . .

CNN has a good piece on credit card reform (click here, as I could not embed it). With card companies increasing rates, there has been a greater proliferation of high rate cards. First Premier has a card for high risk customers that carries a 59.9% interest rate! Yikes! Interestingly, the National Credit Union Administration caps credit unions at 18% interest on credit union cards by law, but private card companies have no such similar limit (See LA Times, Seattle Times). Of course, its all about access to credit, according to the American Banker's Association. While I can understand access to credit and the need for people to build credit, 59.9% is over-the-top and at that rate perhaps some people should not be getting credit, as the cost is too high. Perhaps there is a role for the traditional usury statutes again.

Whose to blame for all this mess? Well, the Supreme Court had a part to play with its 1978 decision in Marquette vs. First Omaha Services making it legal under the National Bank Act for banks to locate in states without interest rate restrictions. Although the Court recognized that this would impair the effectiveness of state usury laws, the problem is "better addressed to the wisdom of Congress than to the judgment of this Court." Despite the passage of the CARD Act, Congress has not addressed the interest rate differential. Perhaps the increases in rates after the CARD Act might provide some impetus for changes to the extent banks overreach in their charging of customers.

- JSM

What You Need to Know About the Card Act

For consumers looking for basic information about the CARD Act, the Federal Reserve just published What You Need to Know: New Credit Card Rules. What credit card companies must tell you:

• when they plan to increase your rate and fees
• how long it will take you to pay off your balance.

The circular also covers all the new rules on fees, rates and limits:

• no rate increases for new cards in the first year
• rate increases only apply to new charges
• restrictions on over-the-limit transactions
• caps on high fee cards
• protections for underage consumers (under 21)

Finally, the circular contains some new rules on billing and payments:

• standardized payment dates and times (i.e. payments due on the same day each month)
• payments applied to highest risk first
• no two-cycle billing.

All and all, the circular is easy to read and even contains handy definitions and links to other information. Hopefully, consumers will be able to find this easily on the Internet (and will read it). Three cheers to the Fed for trying to get the word out.

- JSM

Hooray for the New Overdraft Rules

Yes, its taken a long time. Yes, it has needed urging through proposed legislation in Congress. Yes, it has taken the coordinated efforts of several federal agencies. But, success at last. Yesterday, the Federal Reserve Bank announced final rules amending Regulation E of the Electronic Funds Transfer Act (see press release). As we've complained here before, these overdraft charges amount to about $1.7 billion each year in fees to banks (See FDIC Study, How Your $4 Cup of Coffee). There were a number of touchy issues with the banks pushing back firmly on how the rules would come out. Fortunately, the Federal Reserve seems to have come down firmly on the side of consumers on most of the issues primarily raised by debit card use.

So, here are the highlights:

1. Banks must comply with the Final Rules as of July 1, 2010


2. Banks cannot charge an overdraft fee on ATM and point-of-sale debit card (POS) transactions without the customer affirmatively opting-in to overdraft protection


3. The rules apply to existing and new accounts


4. Banks must offer the same account terms to customers who do not choose overdraft protection for ATM and POS transactions

Three issues remain unresolved by the Final Rules: (i) the size of overdraft fees (often $35 per transaction with no daily limit on the number of transactions charged; (ii) the batch reordering of transactions done by banks to increase the amount of fees generated on transactions by customers who do opt-in; and (iii) debit holds that trigger overdraft fees on transactions such as gasoline, hotels and restaurants. These gaps aside, the progress made by the Federal Reserve on debit cards is substantial.

Remember, banks can still charge the fees on those who have not opted-in until July 2010. So, still use your debit cards with care. As for me, I will not be opting-in, but will await the sales pitch that banks will inevitably make.

- JSM