Current Issues in Credit Unions #40.

David Reed, the CU Doctor is our guest this month.  Faith, Brian, Guy, Katherine and Rob host.  Here are the topics:

–Credit CARD Act ongoing madness.
–Bankruptcy Cramdowns.
–Speculation as to what’s going to happen on closed end loans by way of new regulations.
–Big K Roundup.
–Bad Debt Restructuring

The CIiCU hosts are:
Brian Witt
Farleigh Wada Witt,
Attorneys at Law
121 SW Morrison Street, Suite 600
Portland, Oregon 97204
Telephone: 503-228-6044
Fax: 503-228-1741

Guy Messick
Messick & Weber P.C.
The Madison Building, 108 Chesley Drive
Media, Pennsylvania 19063-1712
Telephone: 610-891-9000
Fax: 610-891-9008

Faith Anderson
American Airlines Credit Union
P.O. Box 619001
MD 2100
DFW Airport, TX
(800) 533-0035

Robert Rutkowski
Weltman, Weinberg & Reis Co., L.P.A.
323 W. Lakeside Avenue, Suite 200
Cleveland, Ohio 44113
Telephone: 216-739-5004
Fax: 216-739-5642

Subcribe to the show via iTunes Music Store:

Direct download: CIiCU_40_final.mp3

6 thoughts on “Current Issues in Credit Unions #40.

  1. Rob,
    Great podcast as usual. One thing that came up was that there was already a requirement for the periodic statement to be sent 14 days before the due date. My understanding is the requirement only applied in situations where there was a grace period. The typical auto loan on open-end paper is a simple interest loan without a grace period and, therefore, no requirement to send the periodic statement 14 days before the expiration of the grace period.

    When Congress added the 21-day requirement to Section 163 of TILA, they did not consider that the existing 14-day requirement had traditionally only applied to accounts with grace periods, namely credit cards, and had not impacted simple interest loans.

    The impact of that oversight has been enormous.

  2. Thanks for listening, Steve! I’m not sure that I agree with you on the prior 14 day rule. Take a look at the former version of Reg Z §226.5(b)(2)(i). I don’t think that exempted accounts without grace periods from the 14 day notice. I do agree that Congress did forget to contemplate grace periods in §163 of the new TILA. This now requires creditors to adopt reasonable procedures to ensure statements are mailed or delivered at least 21 days before the payment due date and the expiration of the grace period.

  3. Rob, the former version of §226.5(b)(2)(i) contains the general requirement – but it is subsection (ii) which contained the timing requirement. Subsection (ii) required statements to be sent “at least 14 days prior to any date or the end of any time period required to be disclosed under § 226.7(j).” Section 226.7(j) requires the disclosure of any “free-ride period” or “grace period.”

    For simple interest loans, with no grace period, it doesn’t appear the 14-day provision would have applied.

  4. My interpretation would be that the 14 day notice requirement in the old Section 226.5(b)(2)(ii) applied to all open ended loans. This section read, “The creditor shall mail or deliver the periodic statement at least 14 days prior to any date or the end of any time period required to be disclosed under Section 226.7(j) in order for the consumer to avoid an additional finance or other charge.” It allowed the creditor to include the grace period (if the loan had one) in counting the 14 days. I do not interpret it to be that there was no requirement on timing at all if there was no grace period. If we take out the reference to the grace period, it would read, “The creditor shall mail or deliver the periodic statement at least 14 days prior to any date in order for the consumer to avoid an additional finance or other charge.” The “any date” presumably being the due date. If the section were to apply only to loans with a grace period, what would the words “any date” be referring to? Also, given the nature of Req Z being a consumer protection reg, it would seem to be even more important to apply to the loans without grace periods. Just my take on it!

  5. I took a look at the official staff commentary to Section 226.5(b)(2)(ii) and the 14-day rule would apply to all open-end loans if there was a late payment fee assessed. It appears the key words here are “or other charge.” Here is the staff commentary: “Paragraph 5(b)(2)(ii).
    1. 14–day rule. The 14–day rule for mailing or delivering periodic statements does not apply if charges (for example, transaction or activity charges) are imposed regardless of the timing of a periodic statement. The 14–day rule does apply, for example:
    • If current debits retroactively become subject to finance charges when the balance is not paid in full by a specified date.
    • If charges other than finance charges will accrue when the consumer does not make timely payments (for example, late payment charges or charges for exceeding a credit limit).”

    The Fed discusses this in its Interim Final Rule as well (and does so in a way that is pretty damning to my argument above): “The current version of Regulation Z, however, applies the 14-day requirement even when the consumer does not receive a grace period. Specifically, current § 226.5(b)(2)(ii) requires that creditors mail or deliver periodic statements 14 days before the date by which payment is due for purposes of avoiding not only finance charges as a result of the loss of a grace period but also any charges other than finance charges (such as late fees). See also comment 5(b)(2)(ii)–1.”

    I know some credit unions offer a “courtesy period” of up to 15 days before a late fee would be assessed. It looks like under the old rule, this could have worked – as they may well have been mailing statements at least 14 days prior to when a late fee would be assessed. However, the new rule provides that the payment due date is the relevant date for the 21-day rule and not the end of any courtesy period – which takes away that argument for a lot of credit unions.

    Very good discussion on this, I’ve enjoyed it.

  6. Excellent discussion indeed Steve! Thanks. And again, I cannot say enough good things about the NAFCU Compliance Blog. The stuff NAFCU put out on the Credit CARD Act when the panic set in was like a lighthouse in a storm.

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