Henry Hobson, the new head of lending at Anthrax Research Federal Credit Union thinks that he can raise revenue by charging penalty rates on credit cards. He creates disclosures to this effect in the credit card application and agreement. Donna Debtor signs up for a new card under Hobson’s new program and transfers all her considerable balances to it. It only takes her 45 days to default on the card and trigger the new, higher rate on her card. She doesn’t notice the change, however, until 3 months later. She is incensed to see that she is now paying a higher rate as she never received notice. Moreover, the rate applies to all the balances she transferred as well. She has used the card since the rate change, but she promply cuts up the card now and calls Hobson to complain.
What is the result under the current Regulation Z? What will need to be done after July 1, 2010?
Those of you who are attending this seminar or this seminar will find out the answer this week when we do the workshop together. Everyone else is welcome to take a stab at it in the comments and I’ll come back with the answer next week (or thereabouts).