As Clear As Mud

Steve Van Beek had an excellent post today at The NAFCU Compliance Blog about recent "clarifications" issued by the Fed of its previously issued regulations implementing the Credit CARD Act, specifically those portions of the regulations that removed "floor rates" for credit card accounts. Steve skillfully maneuvers his way through the maze of Federal Reserve Board preambles, press releases, commentary, and the regulations themselves to determine that effective October 1, 2011, the Fed will extend certain restrictions on increasing variable rates without prior notice under certain circumstances from credit card accounts only to credit card accounts and open-ended credit accounts (except HELOCs). It's not so much the effect of the rule, but that the extension in coverage of the restriction was effected by means of a "clarification" of a rule that is found in the preamble of a clarification and in a staff comment, but is not highlighted, or even mentioned, in the fed's press release. That is a pretty big "clarification" considering the Federal Reserve extended one of its rules from only credit card accounts to all open-end credit products (except for HELOCs, for now). Did the Fed make mention of this change in its press release? Nope. To their credit, they did explain their rationale in the preamble. The Fed's "clarification" is finalized in a new comment in the staff commentary to Reg Z. […] I sure hope the CFPB is making a list of things not to do when writing or amending regulations. If a regulator is going to make a large change under the guise of a "clarification" – they should at least be clear in their "clarifications" and not use cross-references to explain a fundamental restriction. […] I firmly believe if regulators would write regulations (and the staff commentary) in a more straightforward manner, financial institutions would need to expend less resources reading and comprehending the new regulations. In this situation, the Federal Reserve should have clearly indicated in the staff commentary the new restriction rather than using a cross-reference. Amen to all of that, Brother Van Beek! This is the kind of rooting about in the weeds that drives bankers nuts, especially community bankers. Unlike the large banks, smaller institutions don't have legions of compliance hobbits stuffed in cubicles who live to plow through fields of regulatory minutiae and who reach the peak of orgasmic bliss when the find a nugget of nuance buried in the fine print, the kind of nugget which, if it remains buried where only the Rain Man can find it, could have painful and expensive consequences at the next consumer compliance exam, when a kid examiner barely old enough to shave with a safety razor is waiting to stick his leg out and trip up an elderly bank compliance officer on his or her way down the hallway to check out the ply-width and tensile strength of the toilet paper in the rest room. It's the reason that during compliance examination time, some community bank CEOs refuse to let their compliance officers wear belts or use sharp eating utensils in the break room. I share Steve's hope that the CFPB backs up Liz Warren's assurances that the CFPB's goal is to make the rules, as well as the required disclosures, as clear as pure Rocky Mountain spring water. Unfortunately, given my natural bent, I expect to see my glass of spring water half-full and cloudy.

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