In the aftermath of the 2008 financial crisis, Congress enacted the Credit Card Accountability Responsibility and Disclosure Act of 2009, commonly referred to as the Credit CARD Act of 2009.1 Signed into law on May 22, 2009, and effective Feb. 22, 2010, the act primarily amended the Truth in Lending Act (TILA) and established a number of new substantive and disclosure-related requirements to establish fair and transparent practices pertaining to open-end consumer credit plans.2 The act focused on increased simplicity in account information and disclosures, limits on the manner in which interest rates, fees and credit limits could be changed, and the enhancement of billing and payment practices.
The Board of Governors of the Federal Reserve System enacted Regulation Z3 to implement the provisions of the act. The purpose of the regulation is to promote the informed use of consumer credit by requiring disclosures about its terms and cost. The regulation gives consumers the right to cancel certain credit transactions that involve a lien on a consumer’s principal dwelling, regulates certain credit card practices, and provides a means for fair and timely resolution of credit billing disputes.
Recently, the board noted that clarification of Regulation Z was needed “to resolve confusion regarding how institutions will comply with particular aspects of those rules.”4 These changes to Regulation Z, effective Oct. 1, 2011, are noteworthy. Credit card issuers are now required to consider an individual’s ability to pay.5 In addition, credit card applications, rather than asking for household income, must ask for the income/salary of the individual applicant.6 A more comprehensive review of each individual applicant’s personal finances will therefore be necessary. Such a comprehensive review will require issuers to conduct an assessment of an individual’s monthly income and expenses for things such as rent or mortgage payments. The consumer’s spouse’s income (or other card holder liable on the account) may be considered only if the consumer has an ownership interest in the other person’s income.7
While a consumer’s independent ability to pay must be considered by the credit card issuer, in a community property state or in instances in which the spouse jointly applies for the credit card, a spouse’s income may also be taken into account.8
Although the revised ability-to-pay standards are aimed at protecting consumers and ensuring more prudent lending by financial institutions, logically such increased regulation may hinder access to credit for some consumers, such as stay-at-home spouses.
Further, the new rules address concerns of inconsistency between the CARD Act and revocation of promotional waivers or rebate programs based on violations of the account terms. Under the new rules, promotional offers, such as the waiver of interest for a certain period of time, cannot be canceled by the credit card issuer unless the consumer’s account becomes delinquent for 60 days or more.9 The termination of such promotional offers will, under the CARD Act, constitute a rate or fee increase and fall under the rules regarding increases in APR, fee and other charges.10
In an effort to curb abuses by subprime credit card issuers, the new rules further limit fees which may be charged by issuers.11 Current rules regarding credit card fees prohibit issuers from charging fees greater than 25 percent of the initial credit limit for the account. This 25 percent maximum will, under the new rules, apply to charges both prior (such as balance transfers), and subsequent to the account being opened.
Lastly, and perhaps more interestingly, amendments to the definition of “credit card” were included. Although not traditionally thought of as “credit cards” under the new rules, “account numbers,” such as credit that is linked to checking or other types of accounts despite the fact that no physical credit card exists, are now included under the definition.12 As a result, even if there is no actual card used, the product will be deemed a “credit card” if goods or services can be purchased with an account number. Products that may now be deemed a “credit card” include, for example, open-end credit accounts that function like credit cards but are designed for online purchases and can only be accessed using an account number.
The effects of the CARD Act and the amended regulation remain to be seen.
Concern Over Robocalls
Although many concerns have been raised by consumer advocate groups, recently proposed legislation in the House of Representatives, termed the Mobile Informational Call Act of 2011,13 will result in the modernization of the Telephone Consumer Protection Act of 1991 (TCPA).14
The TCPA is a significant piece of legislation under which the national “Do No Call” registry was created, and significant protections from unsolicited telephone calls, especially for cellular phone customers, were afforded to consumers. Enforced by the U.S. Federal Communications Commission (FCC), the TCPA prohibits “automatic telephone dialing systems” from calling cellular phones unless the user has provided “prior expressed consent.”15 Such specific protections were afforded to cellular phone customers on the premise that cellular phones are more personal than landlines, and cellular phone customers are responsible for paying for so-called “minutes used,” which, at the time that the TCPA was enacted, were significantly more expensive than today.16
Enacted two years prior to the first text message ever sent, the TCPA is arguably outdated and needs to be updated in order to account for changes in the telecommunications landscape. The Mobile Informational Call Act of 2011 is intended to do just that.
Rep. Edolphus Towns (D-N.Y.), who sponsored the TCPA with Rep. Lee Terry (R-Neb.), expressed that the bill is not intended to do away with current telemarketing bans and “Do-Not-Call” regulations. Rather, while modernizing the TCPA, the bill is intended to provide important information to consumers in a timely manner.17
Currently, informational calls to mobile devices are prohibited under the TCPA; however, statistics indicate that cell phones are owned by 83 percent of the U.S. adult population.18 Rather than a landline telephone, cellular phones have become the primary and exclusive telecommunications device used by, according to some sources, 40 percent of American households.19
As a result, under the TCPA, businesses are often unable to communicate important and time-sensitive information to consumers. Examples of such information include fraud alerts from financial institutions and creditors, airline flight delays and cancellations, drug recalls, and account payment reminders.
While critics argue that the Mobile Informational Call Act of 2011 would result in cellular phone customers receiving unsolicited commercial messages and harassment from bill collectors, supporters of the legislation maintain that the informational call restrictions of the TCPA often result in unnecessary costs and inconveniences to consumers, businesses, and the economy as a whole.20
Further, supporters of the act note that the legislation will modernize the TCPA by doing the following: (i) informational calls would be exempt from the restriction on auto-dialer and so-called artificial or prerecorded voice phone calls to cellular phone numbers; (ii) communications between consumers and the businesses with which they voluntary interact would be facilitated by clarification of the TCPA’s requirement for “prior express consent”; and (iii) technologies that assist with telemarketing calls to cellular phone numbers would continue to be prohibited, but equipment that stores pre-determined numbers or has latent but unused capacity to generate random or sequential numbers would be excluded.21
Perhaps most significantly, the TCPA’s private right of action, which is subject to abuse and often results in frivolous litigation, would be curbed. Rather, under the new proposed legislation, the FCC would hear TCPA complaints and private lawsuits would be permitted only in instances in which the FCC fails to respond to a complaint in a timely manner.22
With record high levels of unemployment and a dismal economic forecast, there is no doubt that we are living in a strong consumer protection environment. Despite the growing debate, modernization of a 20-plus-year-old law in order to allow for informational calls to consumers is overdue, and the proposed legislation will allow for this while also preserving the protections afforded to cellular phone customers under the TCPA.
Social Media Websites
The use of social media websites in order to contact a consumer regarding a debt, or to attempt to collect a debt, remains a gray area of the law. In an age of Facebook, LinkedIn, Twitter, and various other social mediums, privacy concerns are prevalent as massive amounts of information and data are readily accessible on the Internet.
The Fair Debt Collection Practices Act (FDCPA)23 was initially added to the Consumer Credit Protection Act in an effort to eliminate common debt collector abuses. Although the FDCPA has been effective in many ways and has in fact prohibited many formerly common abuses, social media websites were not common at the time that the FDCPA was written. As a result, such were not contemplated or addressed.
While, as of yet, the Federal Trade Commission has not acted, as abuses of such social media outlets rapidly increase, changes to the FDCPA to specifically address such abuses are inevitable.
In the interim, despite any specific provisions regarding social media websites, the FDCPA does, however, prohibit certain acts from being taken by debt collectors. Although not specifically geared toward social media websites, the acts prohibited apply with equal force in that context. More specifically, the FDCPA provides that debt collectors cannot disclose the debt when they contact third parties in an effort to obtain location and/or contact information for a debtor.24
Debt collectors, when contacting third parties via social media websites such as Facebook, must abide by the same guidelines. Furthermore, once a debtor is located, such third-party contact must stop immediately; however, in certain instances, such as when the third party is a co-signer, attorney for the debtor, or the debtor’s spouse, such contact may continue.25
Additionally, regardless of the fact that a social media website is being used to contact the debtor, the debt collector must still provide the debtor with certain information. For example, a debt collector must disclose the name of the company he works for and that he is attempting to collect a debt.26
Debt collectors also need to be mindful of the fact that, despite contacting the debtor via a social media website, detailed information regarding the debt, including the name of the creditor, the alleged outstanding balance and the date that the debt was incurred, must be provided in writing.27 Lastly, any requests made by the debtors for the debt collectors to cease communication and/or to not contact them at work must be honored immediately.28
Despite the fact that a different medium of communication is being used, debt collectors must follow the same practices and procedures used to communicate with the debtor via more standard methods.
David M. Barshay is a member of Baker, Sanders, Barshay, Grossman, Fass, Muhlstock and Neuwirth, in Garden City. Melissa H. Field, a senior associate with the firm, assisted in the preparation of this article.
1. PL 111-24, 2009 HR 627.
2. 75 FR 67458-01.
3. First Premier Bank v. U.S. Consumer Financial Protection Bureau, 2011 WL 4458785 [D.S.D. 2011].) See 12 C.F.R. 226.
4. 75 FR 67458-01.
5. Regulation Z, §226.51(a)(1); 76 FR 23021.
7. Regulation Z, §226.51(a)(1); 76 FR 23021, 22976.
8. Regulation Z, §226.51(a)(1); 76 FR 23021, 22977.
9. Regulation Z, §226.55(b); 76 FR 23030.
11. Regulation Z, §226.55(b); 76 FR 23034.
12. Regulation Z, §226.55(a)(15); 76 FR 22949.
13. Mobile Informational Call Act of 2011, H.R. 3035, 112th Cong. (2011).
14. Telephone Consumer Protection Act, 47 U.S.C. §227 (2006).
15. 47 U.S.C. §227(b)(1)(A)(iii).
16. (http://republicans.energycommerce.house.gov/Media/file/Hearings/Telecom/110511HR3035/Memo.pdf.) (last visited 12/1/11).
18. (http://www.pewinternet.org/Reports/2011/Smartphones.aspx) (last visited 12/1/11)
19. http://www.cdc.gov/nchs/data/nhsr/nhsr039.pdf (last visited 12/1/11); (http://www.uschamber.com/issues/letters/2011/letter-house-subcommittee-communications-and-technology-supporting-hr-3035-%E2%80%9Cmobiwww.uschamber.com/issues/letters/2011/letter-house-subcommittee-communications-and-technology-supporting-hr-3035-%E2%80%9Cmobi. (last visited 12/1/11).
20. http://www.uschamber.com/issues/letters/2011/coalition-letter-support-hr-3035-mobile-informational-call-act-2011. (last visited 12/1/11).
22. 47 U.S.C. §227(b)(1)(A)(iii); H.R. 3035.
23. Fair Debt Collection Practices Act, 15 U.S.C. §1692 (2010).
24. 15 U.S.C. §1692b, §804.
25. 15 U.S.C. §1692b, §804; 15 U.S.C. §1692c, §805.
27. 15 U.S.C. §1692g; §809.
28 15 U.S.C. §1692c, §805.