The 14-Day Question

Fed’s Reg Z final rules affect when CUs must send periodic statements.

September 24, 2011

In the July issue, I covered three significant changes to the Federal Reserve Board’s March 2011 Regulation Z final rule regarding prior rule changes implementing the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009. The column addressed employee preferential rates, floor rates, and consumers’ ability to pay.

This column covers an additional significant change concerning the timing of periodic statements.

For credit cards and other open-end loans with a grace period, the Fed’s February 2010 (and August 2009) Reg Z final rules required credit unions to mail or deliver periodic statements at least 21 days before the payment due date and the expiration of any grace period.

For all other open-end loans, a credit union must mail or deliver each periodic statement at least 14 days before the date on which the minimum payment must be received in order to avoid being treated as late for any purpose.

For credit unions that offer no courtesy period, this would be the actual payment due date. For credit unions that offer a courtesy period, this would be the end of the courtesy period (as long as the account isn't treated as late for any other reason before this date).

Subscribe to Credit Union MagazineSome credit unions are confused about this requirement or upset that this rule seems to have suddenly appeared in the Fed’s March 2011 final rule. A short review may alleviate some confusion.

In early 2009, before the Reg Z amendments implementing the CARD Act, creditors were required to mail or deliver periodic statements at least 14 days before the expiration of a grace period or before the payment due date to avoid other charges.

In August 2009, the CARD Act imposed a 21-day timing requirement regarding periodic statements for all open-end loans. After seeing the immense problems credit unions had in complying with this requirement, CUNA approached Congress to request a change in the law.

This led to the passage of the CARD Act Technical Corrections Act in November 2009, which narrowed the 21-day timing requirement from all open-end loans to just credit card accounts and open-end loans with a grace period. The February 2010 Reg Z final rule implemented this change.

The Fed, however, should have provided language in this same final rule for the 14-day timing requirement that applied to other open-end loans. But the agency inadvertently failed to reinsert this requirement in the final rule.

The Fed realized this error and in its March 2011 Reg Z final rule regarding CARD Act clarifications, reinserted the 14-day timing requirement effective Oct. 1, 2011.

It requires credit unions to adopt reasonable procedures to ensure:

  • Periodic statements are mailed or delivered at least 14 days before the due date (provided on the statement) so the payment isn’t considered late; and
  • Payments received on or before that date aren’t treated as late for any purpose, such as increasing the annual percentage rate as a penalty, reporting the consumer as delinquent to a credit reporting agency, or assessing a late fee.

Next: How to comply

How to comply

Complying with the 14-day timing requirement will be more difficult for some credit unions depending on the leniency of their payment options. Whether a credit union currently permits weekly or biweekly payments, or allows payment due dates throughout the month, some of the changes necessary to comply with the 14-day timing requirement will be similar.

Both of the following options will require that the credit union establish one “legal” payment due date for each loan:

• Moving due dates. A credit union that doesn’t offer courtesy periods may move all open-end loan “legal” payment due dates to sometime during the last week (or last third) of the month (for monthly billing cycles) to allow for the 14-day period and the time needed to issue the periodic statement after the end of the month.

Subscribe to Credit Union MagazineEven though one “legal” payment due date is established, a credit union may still permit partial payments on a weekly or bi-weekly basis.

• Daily payment due dates. Credit unions with courtesy periods (that period of time between the actual payment due date and the date a late fee is charged) should be able to permit payment due dates throughout the entire month if the courtesy period is long enough.

Credit unions with shorter courtesy periods will likely have to increase the courtesy period to around 25 days in order to maintain daily payment due dates.

These changes—including establishing “legal” payment due dates, moving the payment due dates to the end of the month, and adding or increasing the courtesy period—are contractual changes that will require an advance notice of change in terms based upon the notice period in your state law.

If no time period is provided, you may provide a 45-day notice as required by Reg Z.

Remember, this requirement becomes effective Oct. 1, 2011. Your credit union’s compliance team should be close to finalizing any changes necessary to comply with the rule.

MICHAEL McLAIN is CUNA’s assistant general counsel and senior compliance counsel. Contact him at 608-231-4185.