We have a credit card program for which we currently do not impose daily spending limits, fallback limits, or holds on ACH payments. As a fraud prevention measure, we would like to impose these limits and holds. Do we need to disclose these changes to our existing cardholders? If so, how much notice do we need to give cardholders prior to making the change?

We are not aware of any laws or regulations that expressly require prior disclosures of the changes in terms you have described. However, we recommend disclosing these changes to existing cardholders at least 45 days before imposing them. Both the Truth-in-Lending Act and Illinois law require 45 days’ notice before the effective date of various other “significant changes” in terms of credit card accounts.

Under Regulation Z, advance notice of “significant changes” to credit card accounts must be provided 45 days prior to the effective date of the change to each consumer who may be affected. “Significant changes” generally include “increases in certain interest rates and fees, increases to the minimum amount due, or changes to the grace period or the way interest is calculated,” as well as certain other changes to the terms required to be disclosed to a consumer at the outset of a credit agreement under Regulation Z. Similarly, the Illinois Financial Services Development Act provides that interest rate increases on future transactions may not take effect less than 45 days after notice of the rate increase is provided to the borrower.

While no federal or Illinois law or rule expressly requires the disclosure of changes in terms related to spending limits, fallback limits and holds on ACH payments, we believe such terms are sufficiently “significant” relative to consumers’ expectations regarding their credit availability that, absent their prior disclosure, these changes could raise potential UDAAP concerns (at a minimum). Providing prior notices of these changes could prevent a customer from being caught unaware of a lack of credit availability or an unexpected spending limit.

Consequently, we recommend reviewing your current credit agreement and drafting a notice of these changes in terms for your existing cardholders.

For resources related to our guidance, please see:

TILA, 15 USC 1637(i)(2) (“Advance notice of other significant changes required. In the case of any credit card account under an open end consumer credit plan, a creditor shall provide a written notice of any significant change, as determined by rule of the Bureau, in the terms (including an increase in any fee or finance charge, other than as provided in paragraph (1)) of the cardholder agreement between the creditor and the obligor, not later than 45 days prior to the effective date of the change.”)
Illinois Financial Services Development Act, 205 ILCS 675/8.5(b) (“Interest rate increase limited to future transactions. An agreement governing a credit card account may be amended to increase the interest rate on future transactions which may take effect not less than 45 days after notice of the rate increase is provided to the borrower. . . .”)
Regulation Z, 12 CFR 1026.9(c)(2)(i) (“[W]hen a significant change in account terms as described in paragraph (c)(2)(ii) of this section is made, a creditor must provide a written notice of the change at least 45 days prior to the effective date of the change to each consumer who may be affected. . . .”)
Regulation Z, 12 CFR 1026.9(c)(2)(ii) (“Significant changes in account terms. For purposes of this section, a ‘significant change in account terms’ means a change to a term required to be disclosed under § 1026.6(b)(1) and (b)(2), an increase in the required minimum periodic payment, a change to a term required to be disclosed under § 1026.6(b)(4), or the acquisition of a security interest.”)
CFPB Website, Can my credit card company change the terms of my account? (July 10, 2017) (“The credit card company has the right to change the terms of your credit card agreement. For significant changes, the card issuer generally must give you notice 45 days in advance. Significant changes generally include increases in certain interest rates and fees, increases to the minimum amount due, or changes to the grace period or the way interest is calculated. You might not receive notice 45 days in advance about changes to the benefits you get from your credit card, such as points or cash rewards, or changes in the brand (for example, changing from Visa to MasterCard or vice versa) because these changes are generally not considered to be significant.”)
Illinois Financial Services Development Act, 205 ILCS 675/8.5(a) (“Amendment of terms. If the agreement governing a credit card account so provides or allows, then a financial institution may at any time or from time to time amend the terms of such agreement in accordance with the further provisions of this Section. The financial institution shall notify each affected borrower of the amendment in the manner set forth in the agreement governing the credit card account and in compliance with the requirements of the Truth-in-Lending Act and regulations promulgated thereunder, as in effect from time to time, if applicable. . . .”)
Consumer Financial Protection Act of 2010, 12 USC 5536(a) (“It shall be unlawful for (1) any covered person or service provider . . . (B) to engage in any unfair, deceptive, or abusive act or practice.”)