When considering how complicated it's going to be for banks to comply with recently issued federal credit card regulations, the most important number to know is 18.
That's how many months banks have to get in line with new policies, suggesting a long, bumpy compliance ride is ahead.
"The fact that they've got over a year to get systems and policies in place shows the level of complexity of the new rules," says Dennis Moroney, a research director at TowerGroup in San Antonio.
The Federal Reserve Board, the Office of Thrift Supervision and the National Credit Union Administration recently approved the new regulations, which go into effect July 1, 2010. The rules touch on almost every element of credit card billing and payments, which in turn means reprogramming, system resets and myriad testing.
"All of the mechanisms that tie together authorization criteria, that determine what you do about credit, pricing and the whole transaction process will need to be examined and adjusted," Moroney says.
For example, banks will no longer be able to raise interest rates on pre-existing credit card balances unless a payment is more than 30 days late. Banks also won't be able to "double bill," or average out the balance from two previous bills, meaning consumers can't get charged retroactive interest from previous bills. Also, "universal defaults," or the practice of raising interest rates on one credit card because a borrower missed a payment on another, will be prohibited under the new rules.
"Any program tied to the pricing structure will have to go through regression testing to make sure it's operating properly and doing what it's supposed to be doing under the new rules," Moroney says.
While it's still early to estimate an exact figure, compliance is likely to be costly, particularly for banks that rely on third parties for processing.
"Community banks are dependent on processors, and these processors aren't going to do programming for free," says Viveca Ware, svp of payment and technology policy for the Washington, DC-based trade group Independent Community Bankers of America. Ware says that while a lot of the information that banks use to compute pricing and produce statements will remain the same, those statements will have to be highlighted and formatted differently.
Most banks contacted would not comment, mostly because they said the scope of the new rules hadn't sunk in. "Our understanding at this point is that it is akin to when automobile manufacturers were required to install driver-side airbags on cars. Car owners could not simply drive their existing vehicle to the repair shop and watch as a new airbag was installed. Entire steering columns had to be restructured," said Peter Baruccio, a spokesperson for the American Bankers Association, in a written statement.
But there's some relief, because while the changes are sweeping, they may involve renovations rather than swapouts. "This doesn't involve new equipment, it requires changing parameters," says Adil Moussa, an analyst for Aite in Boston.