Credit Card Practices

Question 1

What does the credit card practices rule cover?

Answer 1

Marketing and account management practices that may be unfair or deceptive and expose the bank to compliance and reputational risk.

Question 2

What is “up-to” marketing?

Answer 2

A deceptive marketing practice in which there are credit limits “up to” certain amounts. They are illusory because most consumers do not receive the stated limit.

Question 3

First National Bank would like to automatically increase the credit card interest rate for customers who pay late three or more times in six months on their credit card or on any other loan, including on loans with other creditors. What must the bank do to be in compliance with the Credit Card Practices guidance?

a. Explain in promotional rate materials, the application, and the agreement the specific reasons the rate might increase automatically
b. Notify all customers in advance when the rate increases
c. Allow customers 90 days to close their accounts and pay the balance at the original rate, when the bank increases the interest rate due to late payments
d. Not raise the interest rate based on customers’ delinquencies on loans to other creditors

Answer 3

a. Explain in promotional rate materials, the application, and the agreement the specific reasons the rate might increase automatically

Question 4

Which of the following practices could a national bank implement and remain in compliance with the Credit Card Practices guidance?

a. Promote a credit card with a limit ‘‘up to $5,000’’ but send the promotional materials to consumers with lower credit scores who would qualify only for a $1,000 limit
b. Promote credit cards with ‘‘up to’’ limits and charge a nonrefundable annual fee of $100 per account, due with the application and before the consumer is told the actual account limit
c. Raise interest rates on borrowers who default on loans to other creditors, without disclosing this practice
d. Offer a promotional rate for only 90 days after the card is activated

Answer 4

d. Offer a promotional rate for only 90 days after the card is activated

Question 5

ACME Bank would like to offer a 2.9 percent APR promotional rate for its new credit card. The rate is effective for the first six months of the account, unless the borrower makes a late payment or otherwise defaults on the credit card account. At the end of six months, or if an earlier event triggers a rate increase, the rate will increase to 15 percent APR. In order to be in compliance with the Credit Card Practices guidance, which of the following account terms does NOT need to be included in promotional materials?

a. All material limitations on the applicability of the promotional rate
b. The time period the rate is in effect
c. Possible reasons for shortening the promotional rate period
d. A typical payment that would be due at the promotional rate

Answer 5

d. A typical payment that would be due at the promotional rate