What Can You Do About Those Late Credit Card Payments?
I am a firm believer in not making the same mistake twice; I prefer to make new ones instead. In that vein, please do me a favor and double-check the way your credit union handles delinquent credit card accounts.
Late last week, a federal district court in Massachusetts ruled that American Airlines Federal Credit Union violated both the Truth in Lending Act and a similarly worded Massachusetts state law by seizing funds in the member’s account after she became delinquent on credit card payments due to the credit union. A recurring question that the Association’s Compliance Department fields is just what steps credit unions can take to “offset” member funds when they fall behind on credit card payments. The case provides a great opportunity for everyone to remember the basic rules and double-check their procedures. (See Martino v. Am. Airlines Fed. Credit Union, No. 14-10310-DPW, 2015 WL 4920015, at *4 (D. Mass. Aug. 18, 2015)).
The most important thing to keep in mind is that the Truth in Lending Act extends added protections to credit card holders. Consequently, if you want the option of claiming funds to recover delinquent credit card payments, there are several steps you must take ahead of time. Fortunately, this is one area where the regulations are self-explanatory.
The best place to go is 12 CFR 1026.12(d)(2) and its official staff interpretation conveniently provided for us on the CFPB’s excellent website. Most importantly, a credit card holder must affirmatively agree to a card issuer having a security interest to pay off delinquent credit card debts. A technical but critical distinction is that the agreement must create a security interest, which defines with specificity the funds that can be accessed to pay off delinquencies. For this security interest to be valid, the consumer must be aware that he is granting it.
There are three basic indicia to be reviewed in determining whether a consumer has been given adequate notice:
- Separate signature or initials on the agreement indicating that a security interest is being given.
- Placement of the security agreement on a separate page, or otherwise separating the security interest provisions from other contract and disclosure provisions.
- Reference to a specific amount of deposited funds or to a specific deposit account number.
Of these three indicia, perhaps the most challenging to implement involves referencing a specific amount of deposited funds. In the American Airlines case, the court noted that courts are split as to how specific the reference language must be. In this case, the court held that reference to accessing “all” accounts is insufficient. Instead, the credit union should have referred to a specific account number, or highlighted the full amount that could be taken in the event the security interest was executed.
So ends your compliance lesson for the day. I hope you enjoyed your weekend.