No Prosecution For Calif. State Charters

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The state attorney general's office has agreed with credit union and banking groups not to prosecute state-chartered institutions under the controversial new credit card disclosure law while a permanent injunction is in effect barring enforcement against federal charters.

"As long as the injunction applies to federal charters it will also apply to state charters," said Thomas Dressler, assistant attorney general.

Bill Donovan, chief lobbyist for NAFCU, which brought the suit last year, said the deal has been agreed to by all parties in the suit.

Eric Richard, general counsel for CUNA, said the agreement will give state charters some breathing room while a permanent solution is sought. "I think it's a very good agreement. It will put everybody on the same playing field," he said.

The attorney general joined NAFCU, CUNA and several banking groups asking the federal court here to certify the agreement while the attorney general decides whether to appeal a Dec. 23 court ruling barring enforcement against federally chartered credit unions and nationally chartered banks. Dressler said that decision has not been made yet.

"We're still mulling our options," he stated.

The federal court ruling found that the new law which would regulate credit card disclosures in California, is preempted by federal laws governing federally chartered credit unions (the Federal CU Act) and nationally chartered banks (the National Bank Act), and the Truth In Lending Act.

The new disclosure law, passed just last year, was aimed at discouraging card issuers from allowing monthly payments less than 10% of their bills by adding disclosure requirements on credit unions and other card issuers that allow holders in California to pay less than 10% of their monthly balance. Consumer advocates and state lawmakers argued that less knowledgeable consumers, many of whom are of low- and moderate-means, are those who opt to make the minimum payments without knowing it will cause them to pile up large debts and high interest rates.

Among the requirements of the law are an estimate as to how long it will take the cardholder to pay off the balance, what the total cost will amount to by paying the minimum balance, and that the disclosures be made in eight-point type. The law would also require card issuers to include a toll-free telephone hotline, staffed 13 hours a day, 365 days a year, that will allow cardholders to get an estimate of the total cost and the amount of time it will take to pay off their debt while making the minimum payment.

Dressler noted there are other alternatives that may be pursued, among them are to ask the legislature to amend the disclosure law to eliminate the preemption issue.

The other plaintiffs in the suit are: the American Bankers Association, America's Community Bankers, Independent Community Bankers Association, and the Consumer Bankers Association, and four banks; .J.P. Morgan Chase, Citibank, Household Bank, and MBNA America Bank.

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