RETAIL TRADE; CREDIT CARDS;

RETAIL TRADE;

You asked if a bank that purchases another bank’s credit card business can change the terms of a cardholder’s agreement. You also wanted to know Connecticut’s authority over credit card companies.

When banks buy existing credit card accounts, they can change the accounts’ terms in many ways, including raising interest rates, increasing late fees, and eliminating the grace period for late payments. The federal Truth-in-Lending law requires lenders to give cardholders at least 15-days written notice before changing certain terms, such as finance charges (including interest rates) and required minimum periodic payments (12 CFR §226. 9(c)(1)).

Most credit card issuers are national or federal banks, which are regulated by the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS), respectively. Out-of-state state-chartered banks also issue credit cards, and they are supervised by their state banking authorities. Connecticut has jurisdiction over its state-chartered banks, most of which do not issue credit cards. People’s Bank, which does issue credit cards, must answer to the Connecticut Banking Department for violations of the credit card laws.

The Truth-in-Lending Act, also known as Regulation Z, is a federal law, and only federal agencies may enforce it against national or federal banks, such as Fleet Bank, Sovereign Bank, or Bank of America. As bank regulators, OCC and OTS enforce federal laws against these institutions. Federal law generally pre-empts Connecticut from enacting legislation affecting credit card issuers, although it allows a state to apply to the Board of Governors of the Federal Reserve System to exempt a certain class of transactions from Regulation Z. It requires the board to exempt a credit billing practice if (1) the proposed exemption affords the consumer greater protection than the federal law and (2) there is adequate provision for enforcement (12 CFR § 226. 29).

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