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Compliance Existing balances maintain fixed rates
WASHINGTON (4/26/11)--Non-variable rate credit card accounts with outstanding balances must continue to have that same non-variable rate apply to the outstanding balance, even if a credit union converts the account to a variable-rate card. The variable rate must only be applied to new transactions, according to the Credit Union National Association (CUNA). In this month’s Compliance Challenge, CUNA notes that Section 226.55(d)(2) of the Federal Reserve’s Regulation Z prohibits lenders from changing the rate on a credit card outstanding balance unless one of the exceptions applies. This is true even when the balance is transferred from the current account to another credit card issued by the same creditor or the account is closed or is acquired by another creditor. The exceptions include the completion of an introductory or promotional period, a variable-rate plan based on an index that is not under the control of the creditor, the completion or failure to complete a workout arrangement, or the account becomes 60-days delinquent. These rules do not apply to Home Equity Lines of Credit (HELOC). Card issuers may not change the annual percentage rate on a HELOC unless the rate change is based on an index that is not under the card issuer’s control and is available to the general public. While the above restrictions are imposed under Reg Z, that regulation also allows financial institutions to change a non-variable rate to a variable rate upon expiration of a specified period of time, CUNA adds. For more of this month’s Compliance Challenge, use the resource link.

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