The Federal Reserve issued the requirements of the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 in three stages.
The first stage became effective in August 2009, and the second and third stages became effective in February and June 2010, respectively.
However, most CARD Act requirements were contained in the second stage that became effective in February 2010.
After publication of the February and June 2010 final rules, the Fed became aware it needed to provide further clarification to resolve confusion regarding how institutions must comply with certain requirements within those two final rules.
As a result, the Fed issued a proposed rule in November 2010 and a final rule in April 2011 to clarify certain requirements. The April 2011 final rule became effective Oct. 11, 2011.
One of these requirements in Section 226.55(b)(2)*, which applies only to credit card accounts (not other open-end loans), provides that a card issuer may increase an annual percentage rate (APR) when the rate varies according to an index that is not under the card issuer’s control and is available to the general public, and the rate increase is due to an increase in that index.
Further, a true variable-rate increase as described above is provided an exception to the change-in-terms notice requirements which would ordinarily require a 45-day advance notice of change in terms before a rate can be increased or a fee added or increased.
However, an index would be under the card issuer’s control if the index is based on the card issuer’s own prime rate or cost of funds, or the index is subject to a fixed minimum rate or similar requirement (such as a floor) that does not permit the variable rate to decrease consistent with reductions in the index.
When the index is under the card issuer’s control, the account is no longer entitled to the exception from the notice requirements and a card issuer would have to provide a 45-day advance notice of change in terms prior to increasing the rate due to an increase in the index.
NEXT: An example
* Later renumbered 1026.55 (b)(2) by the Consumer Financial Protection Bureau when the agency renumbered Regulation Z.