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While the recently enacted Credit Card Accountability,
Responsibility and Disclosure Act (Credit CARD Act) of 2009 does
address a myriad of consumer credit products, the legislation does
not restrict all open-end credit products in the same manner, and
line of credit (LOC) products remain a viable diversification
option for many lenders.
At the recent Community Financial Services Association of America
(CFSA) annual conference, attorney Blake Sims of Chambliss, Bahner
& Stophel, PC discussed how the law will impact LOC products in
a presentation "New Products and Technology." Noting that one of
the most significant changes that the Act dictates is the manner in
which fees, interest and the APR are disclosed, Sims also explained
that for many lenders LOC accounts may be feasible alternative
offerings for years to come.
With federal legislation such as the Credit CARD Act primarily
regulating disclosures, lenders can look to their state statutes
for opportunities with open-end credit products such as a
LOC.
"In some states open and closed ended credit products are covered
under different statutes, and there are distinct differences among
states just as there are important differences between the product
structures," Sims reports.
Positioned as an open-end revolving account, the LOC offers
consumers more flexibility in loan amounts, the potential of larger
loan amounts and longer terms for repayment compared to traditional
closed-end short-term products. In some states lenders are afforded
more options to design open-end products to meet their clients'
needs and remain profitable. According to Sims, each state
stipulates a variety of restrictions dictating caps on rates,
access fees, participation or annual fees, and all need to be
evaluated separately and differently than closed-end
products.
"It's also important that lenders considering a LOC product work
with a software provider such as TranDotCom who understands the
differences between closed and open-end products and will work with
the lender to adapt their model. It really isn't as easy as just
modifying a closed-end product, because many of the differences lay
in the software. Lenders entering the market will need a good solid
provider such as TranDotCom who understands the nuances in
disclosures, replenishments, and flows," Sims suggests.
TranDotCom introduced its Line of Credit Module in 2009. It is
adjustable to individual state rules and regulations, and supports
a wide range of APR's, initial grace periods, cycle date
calculations, and a variety of lender defined fees.
"We believe that the LOC product provides lenders with
diversification as well as the ability to derive multiple revenue
streams," according to Andrew Rains EVP Marketing and Sales,
TranDotCom.
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