Most provisions of the Credit Card Act of 2009 take effect next February, but some must be implemented in a few short weeks, on Aug. 20. In the coming weeks and months, therefore, bank compliance officers, relevant operations personnel, and executives with responsibility for compliance management have work to do. And as always, each bank's board of directors has ultimate responsibility for overseeing the implementation of the act and the additional regulations that will follow.
Beginning Aug. 20 and subject to only limited exceptions, creditors must provide at least 45 days advance written notice to cardholders regarding annual percentage rate increases and significant changes in finance charges, fees, and other terms the Federal Reserve Board may designate. In addition, as of Aug. 20, creditors that offer a grace period will have to honor it and forego a finance charge unless they have mailed or delivered their periodic statements at least 21 days before the payment due date.
Nearly identical provisions and many others were included as part of the final rules regarding Truth in Lending and Unfair or Deceptive Acts or Practices issued late last year by three federal bank regulators. The July 1, 2010 effective date for those final rules reflected the regulators' understanding that banks would need substantial lead time to plan and implement necessary adjustments to their systems and practices.
But the Credit Card Act has accelerated the effective date for some of these provisions by four months and for others by almost a year. These timing issues present significant compliance management challenges for banks. And every bank should expect that the provisions subject to early effective dates will be high on the examiners' checklists in the coming year.
The initial challenge will be to sort out and make sense of four separate effective dates that result from the overlap of the Credit Card Act and the final rules and will require oversight and coordination of activities within and between a bank's compliance department and relevant operations and support areas. To meet this challenge, compliance managers must match those dates to the numerous compliance requirements imposed by the Credit Card Act and final rules and establish implementation strategies and timelines for each.
Additional challenges involve the revision of forms and disclosures, the reworking of automated processes that generate periodic statements and other account information and communications, and the integration of each into existing bank operations processes. Testing the revised processes and training appropriate operations personnel should commence well before the effective dates in order to allow for adjustments that may be needed.
The Federal Reserve Board included several new and revised model forms with its final rule regarding Truth in Lending. As a result, banks have some basic material to work with. But those forms are not self-executing. They must be understood in the context of several provisions of the Credit Card Act and accurately communicated to those responsible for integrating them into the appropriate information systems.
Several provisions of the Credit Card Act that take effect in February deserve special attention because they will require the implementation of several individualized, account-specific tracking capabilities. When a creditor imposes default APRs, it must also monitor each affected account and roll back the increases on those for which minimum payments have been on time for six consecutive months. Creditors must also periodically review factors that influence the setting of APRs (including each cardholder's credit risk profile) and adjust those rates accordingly. They must distinguish between cardholders who have and have not opted in to the bank's over-limit service, and refrain from imposing that fee on those who have not. And on each periodic statement, creditors must provide three separate account-specific amortization calculations complete with dollar figures and payoff dates.
Successful compliance with provisions of the Credit Card Act that require that degree of individual account tracking will also require close cooperation between a bank's regulatory compliance, operations, training, and back office information processing areas. That is the challenge that bank management faces as the deadlines approach. In the coming year we can expect bank examiners to respond favorably in those instances where careful, proactive compliance management is evident.