Fed's Decision On Card Fees Could Hurt CUs
ST. PETERSBURG, Fla.-While it's expected that a requirement of the CARD Act that takes effect Aug. 22 will eat into banks' credit card fee income, one processor is not so sure CUs won't feel the bite, as well.
Steve Salzer, PSCU Financial Services group executive, is concerned that the over-the-limit and late fees still to be set by the Federal Reserve Board as part of the CARD Act could affect CU credit card fees. "If the Fed goes overboard on these fee limits-like they did with some of the CARD Act rules to get at the abusive banks-it may cut a bit deeper into credit union fee income."
The CARD Act requires that credit card penalty fees should be reasonable and proportional to the violation, explained Salzer. But at press time the Fed had yet to set limits, which could also lead to operations issues as CUs scramble to meet the Aug. 22 deadline once limits are established.
"Credit card and operations folks who generally have calm summers will not have a quiet summer in the next few months," insisted Salzer. "The intelligence we are getting is that the Federal Reserve Board won't issue the final regs until probably late June. That's a pretty short period of time to comply, depending on how extensive the changes are."
Salzer urged credit unions to prepare by running "what-if" scenarios.
Meanwhile, Kay Leaks, regulatory compliance manager at the Brookfield, Wis.-based Fiserv, contended that some credit unions-if limits the Fed sets fall below what the CU is charging-may instead take a hard look at revenue from credit card over-the-limit and late fees and decide to do away with them. "Some will look at what those revenue sources have returned over the last few years, and determine it is not worth the headache or hassle to operationally reach out to all cardholders."
There are also some minor statement formatting requirements from the CARD Act that kick in Aug. 22, for which Salzer believes credit unions are prepared. But what may have slipped past some, suggested Leaks, is the CARD Act rule that credit card accounts repriced due to risk or market condition issues have to be reviewed every six months to determine if those conditions have been corrected, and if so the cardholder's rate must be rolled back. That will require credit unions to flag these accounts for review every half year, Leaks said.
"The kicker is that this starts with loans that are booked Jan. 1, 2010 or later. So as I read the reg, coming up in July the first six-month review should be done."
Salzer interpreted the rule to say that reviews first need to be made starting Feb. 2011. But Mitch Lucas, VP-product management and legal compliance at the Pleasanton, Calif.-based Harland Financial Solutions, had a third opinion. "Accounts where rate increases were made after Jan. 1, 2009, must be reviewed, and those reviews must begin August 22, 2010."