The proposed Regulation Z revisions cover two different kinds of disclosures designed to warn consumers who make the minimum payments on their accounts. Paying only the minimum amount each month lengthens the amount of time credit cardholders can take to pay off their debts — and increases the amount of interest creditors earn from account holders.
45 days’ notice
Account opening disclosures
Periodic statement disclosures
Changes in credit card terms
Subprime credit cards
The Fed proposes alerting consumers on monthly (periodic) statements about the consequences of minimum payments. The proposal requires credit card issuers to: “provide (1) a ‘warning’ statement indicating that making only the minimum payment will increase the interest the consumer pays and the time it takes to repay the consumer’s balance; (2) a hypothetical example of how long it would take to pay a specified balance in full if only minimum payments are made; and (3) a toll-free telephone number that consumers may call to obtain an estimate of the time it would take to repay their actual account balance using minimum payments.”
The National Retail Federation, a trade association that represents more than 1.6 million retailers (discount and department stores, catalog distributors and Internet sites), says the Fed should clarify this requirement. Retailers may grant several different lines of credit (called sub-accounts) to a single customer based on general purchase items or big-ticket merchandise. These accounts each often carry different interest rates and terms.
“It is not clear whether the proposal contemplates a separate minimum payment disclosure for each of these sub-accounts,” the retail federation writes. “Some credit grantors may want to disclose only the longest applicable period, while others may wish to specify the maximum time … ” Read more (Page 5)
Revolving lines of credit
Regulators also want to make revolving credit plans — those credit accounts opened at furniture or appliance stores or other retail outlets selling “big-ticket” items — more consumer-friendly. These types of accounts may not issue credit cards but make lines of credit available to customers. “The monthly minimum payments associated with the purchase are often advertised as part of the offer,” according to the board.
You’ve probably seen or heard ads that promote “zero down” or $50 a month” and it’s yours to take home. “Some consumers agree to the financing on the basis of a certain advertised minimum payment but are later surprised to learn how long the debt will take to pay, and how much the credit will cost them over that time period,” according to regulators.
There are currently no rules requiring creditors to disclose repayment terms in the ads. The Fed wants to change that. Regulation Z revisions would require all advertisements for these credit plans to give equal prominence to the minimum payment as well as the amount of time required to pay off the balance and the total amount of the payments if consumers pay only the minimum monthly installments.
Retailers object to this provision as well, citing concerns that the minimum payment disclosures do “not provide consumers with a realistic assessment of the time required to complete minimum payments … ” Read more (Page 7)
However, Chase bank has asked the Fed to reconsider this rule change because banks and credit card issuers are the wrong targets for such regulation. “We believe these changes should be limited to sellers of goods and services, or those under common control with those sellers.” Read more (Page 17)
The National Consumer Law Center points out potential loopholes in both disclosure proposals, and notes: ” … [T]here may well be a sales pitch without an ‘advertisement’ … ” Read more (Page 45)
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