Appeals of Material Supervisory Determinations:
Guidelines & Decisions
SARC-2000-01 (May 23, 2000)
On May 19, 2000, the Supervision Appeals Review Committee
(“Committee”) of the Federal Deposit Insurance Corporation (“FDIC”)
considered the appeal by [Bank] (“Bank”), of the determination that the Bank
violated the requirements of section 226.5a(d)(2) of
12 C.F.R. Part 226,
Truth in Lending (Regulation Z) (“Regulation Z”).
After carefully considering the issues raised in your
appeal package dated March 23, 2000, the Committee concluded that the
finding of a violation of Regulation Z should be affirmed.
The Committee concluded that:
- The Bank’s interpretation of the term “use” is not
supported by the language and legislative history of the Truth in
Lending Act (“TILA”). Both plainly employ the term “use” to connote
action beyond simple receipt and possession of a credit card. Taken in
consideration with the appearance of the term in the context of credit
cards in other provisions of the TILA, this language strongly indicates
that a broad interpretation of “use” to encompass mere possession with
the potential to use the credit card to obtain cash, property, goods or
services, is in error.
- The Bank’s interpretation of the term “impose”
is not supported by the TILA or Regulation Z. It is our opinion that the
provisions of Regulation Z which are cited by the Bank to support this
interpretation do not create a distinction between “charging” or
“billing” a fee on the one hand and the “imposition” of a fee on the
other that works to the benefit of a particular creditor. Instead, they
ensure that a consumer is on notice as to the amount and nature of a fee
before it is incurred, in keeping with the stated purpose of the TILA
and Regulation Z which is to promote the informed use of credit;
- The Bank’s argument that Regulation Z does not
override state law in this context overlooks specific language in the
TILA. Section 111(e) of the TILA
(15 U.S.C. § 1610(e)) provides that the
TILA provisions pertaining to credit card disclosures shall supersede
any provision of the law of any State relating to the disclosure of
information in any credit or charge card application or solicitation;
- The purposes which the Bank argues are
fulfilled by its policy are fully served by adhering to Regulation Z
requirements. Section 226.5a(d) explicitly provides for notice of the
annual fee by the creditor to the consumer, within 30 days after the
consumer requests the card, but in no event later than the delivery of
the card. The distinction is that the bank may not actually charge such
a fee to the consumer until such time as he or she accepts the card by
using it. At that point, the annual fee will be owed to the Bank and can
be reflected as a debt in the Bank’s records and its periodic statements
to the consumer.
With respect to this last point, our research shows that
several credit card issuers have dealt with this issue by providing the required Regulation
Z disclosures both telephonically when the solicitation is made and in
writing when the credit card is sent to the accountholder. Measures such as
this definitively resolve the issue of whether the credit card issuer may
charge an annual fee to the credit card holder.
This decision is considered a final supervisory
determination by the FDIC.
By direction of the Supervision Appeals Review Committee
of the Federal Deposit Insurance Corporation.