Q&A: Here’s a question that a Wisconsin credit union recently asked The League’s Legal Affairs team, along with our answer. Do you have a compliance question? Contact The League’s Compliance Hotline at (608) 640-4050 or email.
Q. We are considering closing some of our Kwik Cash loans that have been inactive for seven plus years. Is there anything specific that we need to send to our members to do that? We use The League’s Kwik Cash form as our note when the accounts are opened.
A. The credit union should be able to close Kwik-Cash accounts that have been inactive for so long, but I do need to mention some compliance points:
- Under Sec. 8 of The League’s Consumer Kwik-Cash Loan Agreement form (WCUL #82033), credit unions have the right to terminate a Kwik-Cash line of credit at any time (unless prohibited by other law). Our form says: “Either we or any of you may terminate this Agreement at any time by written notice to the other, but termination shall not affect your obligation to repay all sums borrowed pursuant hereto together with the Finance Charge and any other charges or fees.” This requires you to notify Kwik Cash borrowers that you are (or will be) terminating their accounts. No specific timing or content is required for such a notice, but it should be sent before, not after, termination. [Note: Credit unions that use other vendors’ forms for their open-end plans should check their agreements for similar language and contact their forms vendor for guidance.]
- I assume these old accounts have $0 balances. The Truth in Lending regulations say that a lender cannot terminate an open-end account, such as Kwik-Cash, solely because a consumer does not incur a finance charge. See Reg. Z §1026.11(b). However, creditors may still terminate such accounts if inactive for three or more consecutive months. An account is inactive for purposes of this rule if no credit has been extended (such as by purchase, cash advance or balance transfer) and the account has no outstanding balance.
- Terminating Kwik-Cash accounts for inactivity will not require a change in terms notice under either Reg. Z (45 days) or the Wisconsin Consumer Act (90 days).
- Under Reg. Z §1026.9(c)(2)(v)(A), no change in terms notice is needed when the change involves “suspension of future credit privileges.”
- Wis. Stats. §422.415 requires a change in terms notice to be sent 90-days in advance, but only if the change either 1) imposes or alters a permitted fee, or 2) adversely affects the outstanding balance, which means the change increases the rate of finance charge, or it increases the amount of the monthly payment due. This termination due to inactivity doesn’t do any of those things.
- An Adverse Action Notice isn’t needed under Reg. B, either. Reg. B §1002.2(c)(2)(ii) says that the term “adverse action” does not include “Any action or forbearance relating to an account taken in connection with inactivity, default, or delinquency as to that account …”
- I assume that the inactivity is the sole reason for closing the account. If you have other criteria, it could complicate the answer. For example, if you look at Kwik-Cash account holders’ credit reports and your adverse action is based (even in small part) on information you find there, then the federal Fair Credit Reporting Act will require its own Adverse Action Notice. Our ii Release No. 0126 has details.
- The League’s ii Release No. B046 explains the compliance issues involved with The League’s Kwik-Cash product. You can find material on termination of accounts starting on page nine.
