The Office of the Comptroller of the Currency offered guidance to national banks on three credit card practices it considers unacceptable because they may constitute unfair or deceptive acts or practices or otherwise could expose a bank to compliance and reputation risk.
The guidance came in an advisory letter sent Tuesday.
The OCC expressed concern about one practice in which the cost of credit to a cardholder rises without adequate disclosure of the circumstances that trigger an increase or of the creditor's right to change terms and conditions of the card.
The second practice involves promoting credit limits “up to” a maximum amount that is seldom extended. The third involves using promotional rates in solicitations without clear disclosure of 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,” Comptroller of the Currency John D. Hawke Jr. said. “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.”
The OCC noted in the letter that repricing of credit card accounts and other changes in credit terms may be appropriate for managing credit risk on the part of the card issuer. But certain practices involving repricing accounts and changing terms of agreements may heighten compliance and reputation risks. The OCC said that national banks should not:
· Fail to disclose fully and prominently in promotional materials the circumstances under which the agreement permits the bank to raise the consumer's annual percentage rate (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 cards with credit limits “up to” a specified dollar amount can be appropriate when the amount of credit offered is genuine; a meaningful number of applicants get a significant credit line; material information about the cost and usefulness is presented clearly and conspicuously and disclosures are made in accordance with Regulation Z. National banks should not:
· Target consumers who have limited or poor credit histories with solicitations for cards with maximum, or “up to,” credit limits that are far greater than most of these applicants likely will receive.
· Provide most applicants with a “default credit line” (the lowest line available) that is significantly lower than the maximum amount advertised while failing to disclose fully and prominently in the promotional materials the default 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 uses are substantially illusory. Promotional rate solicitations involve representations that an applicant or current cardholder may receive for a limited time a reduced APR on certain credit card charges or transactions. The reduced APR generally is in effect only for a specified number of months and may be subject to other limitations. Also, other features of the promotion may limit the consumer's ability to benefit, and problems may arise if material terms are not appropriately disclosed in promotional materials. 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 for which the rate will be in effect and circumstances that could shorten the rate period or cause the promotional rate to increase.
· Make representations that suggest material limitations regarding the applicability of the promotional rate do not exist, or fail to disclose fully and prominently in promotional materials and card agreements any fees that may apply involving the promotional terms.
