Skip to main content

Search

Consumer Credit Regulation: 8.6.3 Prompt Crediting of Consumer Payments

TILA requires credit card lenders to promptly credit consumer payments, if the creditor has received the payment in a readily identifiable form in the amount, manner, location, and time indicated by the creditor.423 Payment must be credited as of (although not necessarily on) the day of receipt unless a delay in posting does not result in a finance charge or other charge.424

Consumer Credit Regulation: 8.6.4.1 No Cut-Off Time Before 5:00 p.m.

In response to the practice of lenders setting early hour cut-off times, such as 9:00 or 10:00 a.m., the Credit CARD Act established a requirement that payment cut-off times must be specifically set for 5:00 p.m.435 Regulation Z specifies that the relevant time zone is the one for the location specified by the creditor for the receipt of payments.436 Regulation Z also permits the creditor to set a payment cut-off time later than 5:00 p.m.437

Consumer Credit Regulation: 8.6.4.2 Same Due Date Each Month

The Credit CARD Act requires that the payment due date must be the same day of each month for credit card accounts.438 That means that the due date must be the same numerical date each month, e.g., the 25th of every month.439 A due date that is the same relative date but not the same numerical date each month, such as the third Tuesday of the month, generally would not comply, except the due date can be the last day of each month, even though it would not be the same numerical date.

Consumer Credit Regulation: 8.6.4.3 Weekend and Holiday Due Dates

If the payment due date falls on a day on which the creditor does not receive or accept payments by mail, it may not treat as late any payment received by mail on the next “business day.”441 The “next business day” is the next day on which the creditor accepts or receives payments by mail.442 This provision addresses the practice of lenders, when due dates fell on a weekend or holiday, of treating payments as late if they not received on the prior business day.

Consumer Credit Regulation: 8.6.5.1 Change in Address

If a credit card lender makes a material change in the address for receiving payments or procedures for handling payments, and the change causes a material delay in the crediting of a payment during a sixty-day period after the change, the lender is prohibited from assessing late fees or finance charges for late payment.449

Consumer Credit Regulation: 8.6.5.2 In-Person Payments

If a credit card lender is a financial institution that maintains branches or offices, and the consumer makes a payment in person at a branch or office at which credit card payments are accepted in person, the date on which the consumer makes a payment at the branch or office must be considered to be the date on which the payment is made.452

Consumer Credit Regulation: 8.6.6 Limit on Fees Related to Method of Payment

The Credit CARD Act limits fees that some lenders previously charged for services such as accepting a payment by telephone or at an internet website. Lenders may not impose a separate fee to allow the cardholder to make a payment on a credit card account, regardless of whether the payment is made by mail, electronic transfer, telephone authorization, or other means, unless the payment involves an expedited service by a customer service representative of the lender.460

Consumer Credit Regulation: 8.6.7 Payment Allocation Order

Many credit card companies heavily advertise low APRs in their solicitations that are only applicable to one category of transactions. Previously, one tactic used by these lenders to increase profitability was to allocate payments first to the balances with lower APRs, thus leaving the higher balance APRs to accrue finance charges.

Consumer Credit Regulation: 8.6.8.1 Background

In the early to mid-2000s, many credit card lenders decreased the minimum monthly payments from 4% to 2% or 3% of the consumer’s balance.473 With lowered monthly minimum payments, consumers who pay only the minimum will take much longer to pay off the credit card debt and will pay substantially more in finance charges.

Consumer Credit Regulation: 8.11.1 Debt Collection Abuses

Credit card lenders, like many creditors, have been known to engage in plain old debt collection abuse—harassment, deception, and unfair practices.668 One of the CFPB’s first enforcement actions was against a credit card lender for abuses that included deceptive debt collection practices.669

Consumer Credit Regulation: 8.11.3 Credit Card Reward Programs

Credit card lenders now often compete on the basis of reward programs instead of the price of credit on an account. According to the CFPB, “survey findings that show rewards as the predominant factor in choosing a card.” 700 Credit cards that have a rewards program account for about 90% of spending on credit cards overall.701

Consumer Credit Regulation: 8.11.4 Add-On Products

Another area rife with abuse is the sale of add-on products, such as debt cancellation and debt suspension products (collectively, “debt protection” products) and credit monitoring. Debt cancellation/suspension products are discussed at length in § 6.2, supra.

Consumer Credit Regulation: 8.7.2.3.1 Introduction

Before the Credit CARD Act, college students were a favorite target of credit card lenders.516 One study found that 70% of undergraduates had one credit card, and 90% of these students carried a balance.517 In 2008, the average college senior had credit card debt of $4,100.518 In response, a number of states passed laws regulating credit card marketing on college campuses.519

Consumer Credit Regulation: 8.8.1 Background

“Deferred interest” plans are credit card accounts that promote “no interest” until a certain date, but then retroactively assess interest starting from the purchase date if the consumer does not pay off the entire balance by the specified date.549 For example, if a consumer buys a $2,500 living room set on December 20, 2019 using a one-year deferred interest plan, then pays off all but $100 by December 20, 2020, the lender will add to the next bill all of the interest on the entire $2,500 dating back one year, which would be nearly $400 if t

Consumer Credit Regulation: 8.8.2.2 Credit CARD Act Provisions for Deferred Interest Plans

Deferred interest plans are a creation of Regulation Z, as they would violate several provisions of the Credit CARD Act if not for the exceptions carved out to permit them. In fact, at one point, the FRB had banned deferred interest plans in the Credit CARD UDAP Rule, citing the fact “the assessment of accrued interest [from these plans] causes substantial injury to consumers.”582

The exceptions that permit the existence of deferred interest plans include:

Consumer Credit Regulation: 1.4.1.4 Credit Terms Often Are Non-Negotiable and Incomprehensible

Added to consumers’ difficulty understanding credit terms is the fact that creditors, not borrowers, draft loan documents, and that the terms of credit contracts offered to consumers are basically non-negotiable. A potential borrower can “take it or leave it” and go elsewhere, though sometimes the “elsewhere” is not so easy to find. Thus not only are oppressive credit terms not easy to understand, but they are buried in a take-it-or-leave-it contract.

Consumer Credit Regulation: 1.4.1.5 Borrower Desperation

The ease with which a creditor can take unfair advantage can lead to extreme abuse when the consumer also is desperate to borrow money. Without adequate credit regulation, consumers are easily exploited when their financial circumstances require an immediate loan no matter the long-term cost.115 Matters can get even worse where the consumer is unable to repay the high-cost loan and thus is forced to find yet additional high-cost credit to pay off the first loan.

Consumer Credit Regulation: 1.4.2 Does Regulation Increase the Cost of Consumer Credit?

Creditors often argue against consumer credit regulation by alleging that an unregulated market increases competition that brings credit costs to a competitively low rate. They argue counter-intuitively that interest-rate ceilings actually increase the cost of credit.120 Yet competition among lenders does not appear to drive down rates as more players enter the fringe lending business.121