WASHINGTON --The
Office of the Comptroller of the Currency (OCC) provided guidance to national
banks today on three specific credit card practices that the OCC regards as
unacceptable because they may constitute unfair or deceptive acts or practices,
or could otherwise expose a bank to compliance and reputation risk.
The
OCC expressed concern about practices in which the cost of credit to an
individual cardholder is increased without adequate disclosure of the circumstances
that would trigger an increase or the creditors right to change the terms and
conditions of the card.
The
second practice that the OCC addressed involves the marketing of cards by
promoting credit limits up to a maximum amount that, in reality is seldom
extended. The third practice involves the use of promotional rates in
solicitations without clear disclosure about significant restrictions on the
applicability and continuation of those rates.
The
OCC expects that customers be given adequate information and fair choices in
the selection of credit products, said Comptroller of the Currency John D.
Hawke, Jr. In the event the OCC finds
a national bank engaged in these practices, it will take all appropriate
supervisory action necessary to address the matter.
In
the advisory letter issued today, the OCC noted that repricing of credit card
accounts and other changes in credit terms may be appropriate measures for
managing credit risk on the part of the credit card issuer. However, certain practices in connection
with repricing credit card accounts and changing terms of credit card
agreements may raise heightened compliance and reputation risks. The OCC stressed that national banks should
not:
·
Fail to disclose fully and prominently in promotional
materials the circumstances under which the credit card agreement permits the
bank to increase the consumers annual percentage rate (APR) (other than due to
a variable rate feature), increase fees, or take other action to increase the
cost of credit, such as failure to make timely payments to another creditor.
·
Fail to disclose fully and prominently in marketing
materials and credit agreements that the bank reserves the right to change the
APR (other than due to a variable rate feature), fees, or other credit terms
unilaterally.
The OCC also noted that promotions for credit cards
with credit limits up to a specified dollar amount can be appropriate and
beneficial to customers when the amount of credit offered is genuine, and not
essentially illusory; when a meaningful number of applicants receive a
significant credit line; when material information about the cost and
usefulness is clearly and conspicuously presented; and when disclosures are
made in accordance with Regulation Z.
In this area, the OCC advised national banks that they should not:
·
Target consumers who have limited or poor credit
histories with solicitations for credit cards, with maximum, or up to, credit
limit that is far greater than most of these applicants are likely to receive.
·
Provide most applicants with a default credit line
(the lowest credit line available) that is significantly lower than the maximum
amount advertised, while failing to disclose fully and prominently in the
promotional materials the default credit line and the possibility that the
consumer will receive it.
·
Advertise the possible uses of the card when the
initial available credit line is likely to be so limited that the advertised
possible uses are substantially illusory.
Promotional rate solicitations involve
representations that an applicant or current cardholder may for a limited time
receive a reduced APR on certain credit card charges or transactions. The reduced APR generally will be in effect
only for a specified number of months and may be subject to other material
limitations. In addition, other features of the promotion may limit the
consumers ability to benefit from the program and problems may arise if
material terms are not appropriately disclosed in promotional materials. With respect to these practices, the
advisory indicated that national banks should not:
·
Fail to disclose fully and prominently in promotional
materials and credit agreements any material limitations on the applicability
of the promotional rate, such as the time period for which the rate will be in
effect and any circumstances that could shorten the promotional rate period or
cause the promotional rate to increase.
·
Make representations that create the impression that
material limitations regarding the applicability of the promotional rate do not
exist.
·
Fail to disclose fully and
prominently in promotional materials and credit card agreements any fees that
may apply in connection with the promotional terms.
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