New Reg Z rule for credit cards

* If I were a stock broker, I'd be tempted to advise my favorite clients to purchase stock in supply companies that sell forms. Changes in credit card applications and solicitations, added to the new privacy notices, should keep forms suppliers busy.

The Federal Reserve Board amended Regulation Z this fall to enhance consumers' ability to notice and understand the cost information provided in credit card solicitations and applications. The new rule went into effect Sept. 27, 2000, but compliance is not mandatory until Oct. 1, 2001, to give creditors time to change their forms.

Since 1988, Section 226.5(a) has required that the annual percentage rate (APR) and certain other terms (i.e., balance-computation method, transaction charges, annual fee, minimum finance charge per billing cycle, grace period) be disclosed in a table format generally known as the "Schumer box." The following three terms must also be disclosed, although they can be included in the table or placed in a clear and conspicuous location outside the table: cash advance fee, late payment fee, and the fee for exceeding the credit limit.

While there's been no type size requirements for any Reg Z disclosures, they've had to be in a "readily understandable form" and in a prominent location on or with the application or solicitation.

As interest rates and other account features have become more complex (such as introductory APRs) and disclosures longer, some credit card issuers have compensated by reducing the type size of their disclosures. In these cases, consumers may have difficulty using the table to readily identify the APR, fees, and other terms. The Fed decided credit card disclosures needed to be changed, and CUNA generally supported the Fed's amendments as long as credit unions were given adequate time to revise their forms.

The significant Regulation Z amendments, applicable to credit cards only, are:

* The APR for purchase transactions must be in at least 18-point type and must appear under a separate heading in the Schumer box from other APRs, such as the penalty APR, balance transfer APR, and the cash advance APR

* Disclosures must be "readily noticeable" as well as in a "reasonably understandable form." Disclosures in at least 12-point type will be deemed readily noticeable.

* Disclosures in the Schumer box must be "prominently located." This requirement will be satisfied if the disclosures are on the same page as the application or solicitation reply form. The disclosures may appear elsewhere and still be considered prominently located if the application or solicitation reply form contains a clear and conspicuous reference to the location of the disclosures.

* To simplify the box, only the penalty rates or APR that will apply upon the occurrence of one or more specific events (i.e., late payment or exceeding the credit limit) can appear inside the box. Explanatory information, such as when the penalty applies and how it's calculated, must appear outside the box.

* The APR for cash advances and balance transfers must be disclosed in the box. Balance transfer fees can be disclosed either within or outside the box, as is currently the case for cash advance fees, late payment fees, and over-the-limit fees.

Until the mandatory compliance date of Oct. 1, 2001, credit unions should try to use up existing supplies of credit card applications and solicitations.

Copyright Credit Union National Association, Inc. Dec 2000
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