Credit Union Regulatory Alert  

Published by Howard & Howard Attorneys PLLC

Avoiding UDAAP


Past Howard & Howard e-Alerts outlined 7 Steps to Reduce UDAAP Risk and Advertising Compliance Tips for Credit Unions. This focus is obvious: regulators are closely monitoring advertising and credit unions need to ensure their promotions are in compliance. 

The CFPB's enforcement action against a bank for deceptive advertising of "Free Checking" as well as the CFPB's Bulletin 2014-02 on marketing credit card promotional APR offers should remove all doubt that these issues remain hot compliance topics. 
Credit Union Legal Support
 
Howard & Howard offers a  Quarterly Legal Support Program designed exclusively for credit unions. The program includes direct legal advice and detailed Regulatory Updates.

In response to requests, we added an  Annual Legal Support Program featuring the same components - as a budget-friendly annual program.

Marketing Credit Card Promotional APR Offers


The Regulation Z requirements for marketing credit card offers are very complex and include specific disclosure requirements. For those who are interested, a PDF version of my compliance training on Credit Card Advertising requirements can be found here

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Unfortunately for credit unions, the Consumer Financial Protection Bureau (CFPB) has indicated that compliance with the Regulation Z requirements may not be enough. The CFPB's Bulletin 2014-02 includes this statement:

"The CFPB is concerned that the marketing materials accompanying some offers may risk being deceptive or abusive in violation of the Dodd-Frank Act, even if Regulation Z is not violated."

The statement above increases risk for credit unions. Even if a credit union's advertisement complies with Regulation Z, it could face regulatory scrutiny if the advertisement does not clearly and accurately disclose the credit union's offer. 

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So what is Bulletin 2014-02 discussing? The CFPB is concerned that credit card issuers are not clearly disclosing the potential that a member could lose the grace period on their credit card account if the member accepts the credit union's promotional offer. In the CFPB's words:

"CFPB supervisory experience has observed that some card issuers do not adequately convey in their marketing materials that a consumer who accepts such a promotional offer will lose his grace period on new purchases if he does not pay the entire statement balance, including the total amount subject to the promotional APR, by the payment due date. Affected consumers would be those who maintain a grace period on purchases by paying their full statement balance by the payment due date each month, accept a promotional offer, and then continue to make purchases using the credit card."

In other words, the CFPB is saying that if a member could lose his or her grace period by accepting the promotional APR offer - this fact should be disclosed to the member in the advertisement.

Thus, initially, credit unions will need to determine whether or not members will lose their grace period if they accept the credit union's promotional APR offer. Keep in mind that the CFPB's Bulletin applies to promotional APR offers for convenience checks, promotional interest rate purchases and balance transfers. If members could lose their grace period - for purchase transactions - credit unions will need to disclose this fact prominently in the their advertisements.

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As indicated above, the regulatory expectations have increased for marketing promotional APR offers for credit cards. Credit unions need to ensure their advertisements meet the technical requirements of Regulation Z and prominently include any other information needed to prevent the advertisements from being unfair, deceptive or abusive. 
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In This Issue
Avoiding UDAAP
Credit Union Legal Support
Marketing Credit Card Promotional APR Offers
About Howard & Howard


    



Attorney Spotlight
  

 concentrates his practice in the area of financial regulations. His intimate knowledge of the operational issues facing credit unions provides the perfect platform to recommend best practices to reduce compliance, strategic and reputation risks.
  
Attorney Spotlight
  

  is a Member of Howard & Howard Attorneys PLLC and concentrates his practice in credit union mergers and acquisitions, loan documentation review and strategic planning.
  
This Advisory is intended for informational purposes only, and is not offered as legal advice.  Please call a qualified attorney for counsel related to your particular situation.