Final Rules Amending TILA and Consumer Leasing Act

The Federal Reserve just adopted final rules pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). The rules increase the protections of the Truth in Lending Act (TILA) by extending TILA protections from transactions under $25,000 to those under $50,000. The $50,000 threshold will now fluctuate with the consumer price index, rather than remain static.

The rules also increase disclosure required by lessors of large consumer goods, such as cars, from $25,000 to $50,000. The required disclosures for leases more than four months include information to consumers about the cost of leases.

These rules are effective July 21, 2011.

- JSM

Sarah Palin Criticizes Federal Reserve?

Exit elections, but the politics continue. While we ordinarily see the Federal Reserve as supposedly independent in terms of determining monetary policy, Sarah Palin did not pause to take a swipe at the announcement that the Federal Reserve will buy back government bonds (see Sarah Palin Takes Aim At Fed). In fact, she called on the Federal Reserve to "cease and desist." The rationale is that it will cause an unacceptable level of inflation that will erode our jobs and savings. The monetary policy pursued by the Fed raises more issues to me about simply whether it will work. With interest rates historically low, the Federal Reserve has few tools at its disposal to spark the economy. Let Bernanke do his job and let's hope that the Fed can impact the economy positively.

Palin's claim that prices are already rising simply doesn't bear out reality (see Palin Brawls with WSJ Over Inflated Inflation) in an economy where prices are increasing at notably slow rates. Inflation is not particularly high on the list of concerns that the Federal Reserve has currently, but jobs and the health of the economy generally is (See Dallas' Fed's Fisher: Inflation Low on List of worries).

For a discussion of the mixture of politics and the Federal Reserve, see

- JSM

Bernanke Speech in Jackson Hole, Wyoming

In case you missed it, Ben Bernanke spoke at the Kansas City Federal Reserve annual meeting in Jackson Hole, Wyoming (see transcript). The bottom line: Bernanke is not too concerned about the slowdown in growth and we should expect some relief in 2011 and beyond in the economy. Basically, just wait it out and hope for the best.

For a recap of the speech,

Visit msnbc.com for breaking news, world news, and news about the economy

-JSM

More New Credit Card Rules Take Effect

New credit card rules under the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act took effect this week (See Federal Reserve Press Release)! The Fed, in its effort to be more consumer friendly, has put out another "What You Need to Know" about the rules. One of the big improvements is in the area of late payment fees. Under the old system, card issues could charge basically whatever fee they wanted, whether the card holder was late on a $20 payment or a $100 payment. Now, the fee is set at $25, but the card issuer can charge $35 if one of the last six payments was also late or a larger amount if the company can justify the cost for the higher fee. In any event, the fee cannot be higher than the minimum payment due. For instance, if the minimum due was $20, then the fee cannot exceed $20.

Other new rules eliminate fees for inactivity and extra fees for violating more than one part of the cardholder agreement on a single transaction.

Another twist is requiring card companies to reevaluate rate increases every six months after an increase and to reduce the rate 45 days after an evaluation, if appropriate. Remember all those rate increases companies passed onto card holders prior to the CARD Act's implementation in 2009? Issurers are supposed to lower rates for consumers if the reason for the increase no longer exists. Basically, the Fed is supposed to monitor compliance. I've not heard of any credit card issuers widespread lowering interest rates, but here's to hoping.

- JSM

Federal Reserve Consumer Information on Overdrafts

With its new focus on being consumer-friendly, the Federal Reserve has published a circular on what consumers need to know about the new debit card overdraft rules. Remember, as of August 15th, banks cannot include customers in their overdraft services for ATM/Debit card transactions without their opting-in. The rules apply to new accounts opened beginning July 1. The Fed has even provided a copy of the standard form disclosure that it approved for banks to use, so that consumers can (hopefully) recognize the form when they get it in the mail (see Form). With an emphasis on consumer "choice" and education, it is good to see the Fed getting the word out.

Will consumers understand what this is all about? I suspect so. Just this last week, our 20 year old baby-sitter commented that she wished her bank, Chase, would follow Bank of America and give up on overdraft fees (See Hooray for Bank America). Apparently the word has gotten out positively for BOA. She'd been hit $35 on a debit card overdraft of less than $5. Expensive lesson, yes, but just one example where the new rules will help. Better to be denied at the counter, rather than get the hefty fee. I told her not to worry, the new rules are coming soon.

- JSM

Hooray for Bank of America's New Overdraft Rules?

Is the end of the $39 cup of coffee in sight (See How Your $4 Cup of Coffee Can Cost You)? Today, Bank of America announced that it is doing away with debit card overdraft fees and will just decline consumer transactions that result in an overdraft on their debit card (See Bank of America to End Bank Overdraft Fees). Seems that is just what consumer groups have said for some time that banks should do, but that some banks claimed they couldn't technologically do. Bank of America is crediting itself with listening to consumer preferences on debit cards and their desire to help customers avoid unexpected fees. Bank of America has turned into the kinder, consumer friendly bank? Apparently, they are even notifying customers now when an ATM withdrawl will result in an overdraft (and a $35 fee), rather than just pushing the transaction through. But not to worry, Bank of America will continue to have overdraft coverage that most consumers want on their checks and routine account payments. Rather than trying to convince customers that they really want the $39 cup of coffee, Bank of America has apparently caved on this one. Good for them. Doing the right thing by customers (even if under pressure from the Federal Reserve) is a big step. Hopefully, this will set the tone for other large banks to follow suit. Apparently Citibank has stopped charging overdrafts on debit and ATM transactions.

For those banks not doing away with these fees, the Federal Reserve's new opt-in rules on debit cards are due to come into effect on July 1, 2010. The Federal Reserve’s Final Rules came down on the side of the consumer on many issues. Because the Truth-in-Lending Act applies to credit cards, but does not apply to debit cards, the Federal Reserve’s Final Rules are under the Electronic Funds Transfer Act (15 U.S.C. 1693 et seq.) (EFTA). The thrust of the Final Rules is primarily disclosure and consent based, rather than tackling some of the troublesome banking practices involved in the processing of overdrafts for enrolled customers and the amount banks charge for overdraft services. Specifically, the Final Rules ensure that:

(1) banks cannot enroll customers in overdraft services for ATM and one time debit card transactions without their consent (an opt-in);
(2) banks do not condition the payment of overdrafts on other items, such as checks and ACH transactions, on the customer opting-in for ATM and debit card services and cannot decline overdrafts on checks and ACH transactions for this reason;
(3) banks provide the same account terms, conditions and features to customers whether or not they opt-in; and
(4) the opt-in approach applies to existing and new accounts beginning July 1, 2010.

The Final Rules specifically declined proposals regarding the practice of debit card holds, suggesting instead that banks, networks, and merchants should address this problem.

With any luck, we'll see other large banks doing away with the debit and ATM overdrafts over the coming months. Seems easy enough just to deny the transaction at the counter. Not sure I'd say this, but good job Bank of America.

- JSM

The Politics of Bernanke's Reappointment

The Senate today confirmed Chairmen Bernanke's reappointment to a second term at the Federal Reserve by a vote of 70 to 30 (See Bernanke Confirmed). As concerns abounded about the extent of the Federal Reserve's independence, Senator Schummer commented: “If you don’t like monetary policy when the Fed does it just wait until the politicians get their hands on it.” Well said. Bloomberg did a nice (and short) piece about the politics of the reappointment and the need for the Federal Reserve Chariman to go visiting with the politicians to keep his job.

- JSM