Periodic Statement Requirements (Part 2): Open-End and Closed-End Credit
America’s Credit Unions’ compliance team often receives questions related to the regulatory requirements for periodic statements. This is the second blog written about periodic statements. Previously, I wrote a compliance blog about periodic statement requirements for share accounts. However, today’s post will discuss periodic statement requirements for open-end and closed-end credit.
Regulation Z requires credit unions to provide borrowers with prompt, regular and accurate information for certain loan types. The content and format of periodic statements vary based on loan type. Let’s start off with closed-end credit requirements.
Closed-end credit secured by a dwelling is covered in section 1026.41 of Regulation Z. Under this section, a credit union must provide the borrower with a periodic statement “for each billing cycle.” The commentary to this section explains that if a loan has a billing cycle shorter than a period of 31 days (i.e., bi-weekly billing cycle), a periodic statement covering an entire month may be used.
Paragraph (b) to the section provides the timing of the statement stating that it must be placed in the mail or delivered “within a reasonably prompt time after the payment due date or the end of any courtesy period provided for the previous billing cycle.” The commentary on this rule provides that four days is considered a reasonably prompt time. Credit unions may also need to review their loan agreements to determine whether a courtesy period (time period when no late fee is imposed) applies to the particular loan involved. Please note there are some exemptions which include small servicers.
Paragraph (c) discusses the form of the periodic statement requiring that it be “clearly and conspicuously in writing.” Sample forms for periodic statements are provided in appendix H-30.
Finally, paragraph (d) provides for the content required to be included in the periodic statements, which includes amount due, an explanation of amount due, past payment breakdown, partial payment information, contact information, account information, delinquency information and transaction activity. The commentary to this section elaborates on the meaning of transaction activity stating:
“Transaction activity includes any transaction that credits or debits the amount currently due. This is the same amount that is required to be disclosed under § 1026.41(d)(1)(iii). Examples of such transactions include, without limitation:
i. Payments received and applied;
ii. Payments received and held in a suspense account;
iii. The imposition of any fees (for example late fees); and
iv. The imposition of any charges (for example, private mortgage insurance).”
For non-home secured close-end consumer loans and non-secured closed-end consumer loans state law and contract law or the loan agreement would need to be applied. As such, a credit union may want to consult with local counsel to determine any state law requirements.
For open-end credit secured by a dwelling and non-home secured credit, section 1026.7 of Regulation Z would govern. Specifically, paragraph (a) applies to dwelling secured open-end credit and paragraph (b) applies to non-home secured open-end credit. Both paragraphs have similar language when referring to the content that must be included in the periodic statement including, but not limited to, previous balance, identification of transactions, credits, periodic rates, charges, and the balance on which the finance charge is calculated. However, it is still important to review the regulation in detail to ensure a periodic statement is in compliance with the regulation.
The timing requirements for open-end credit are discussed in section 1026.5(b)(2)(ii) of Regulation Z. The rules differ based on the type of account involved. A periodic statement for a credit card account must be sent at least 21 days prior to the payment due date that is disclosed in the statement. Whereas a periodic statement for all other open-end accounts must be sent at least 14 days prior to the date the payment must be received in order to avoid being treated as a late payment. Alternatively, if a grace period applies to the account, the statement must also be sent at least 21 days prior to the end of the grace period.
As always, feel free to contact America’s Credit Unions’ Compliance Team at compliance@americascreditunions.org with questions.
