April 10, 1985
|STATE OF MICHIGAN
DEPARTMENT OF COMMERCE
FINANCIAL INSTITUTIONS BUREAU
IN RE: REQUEST BY FINANCE AMERICA CORPORATION FOR A DECLARATORY RULING ON THE INTERPRETATION OF SECTION 1(e) OF ACT 379 OF THE PUBLIC ACTS OF 1984.
Statement of Facts
Finance America Corporation (FAC), a licensee under 1981 PA 125, 1939 PA 21 and 1950 PA 27, is a corporation that offers consumer credit in 42 of the 50 states. Mr. Richard C. Smith, the regional industry relations director of FAC wrote a letter to Mr. John Drury dated January 22, 1985 pertaining to the interpretation of Section 1(e) of 1984 PA 379. This act authorizes the issuance of credit cards or other devices which give the cardholder the privilege of obtaining credit. Credit card issuers must obtain a license as required by the act and shall not charge a rate of interest in excess of 1.5% of the unpaid balance per month. Mr. Smith inquired into the possibility of requesting an Attorney General Opinion on whether the word "device" used in the definition of "credit card" in section 1(e) would include checks given to a person (the debtor) as a part of a check credit program offered by FAC. After being informed by Mr. Drury of the process required to obtain an Attorney General Opinion, Mr. Smith, in a February 5 letter requested that the Bureau issue a declaratory ruling on the question posed in the January 22 letter.
In the January 22 letter, Mr. Smith gave some details of FAC's PersonaLine credit program (PLC). He indicated that FAC's PLC program was similar in many respects to credit card revolving charge and loan accounts. The PLC program provides the customer with access to a preapproved line of credit on a continuing basis. The customer can access this account to cover major long-term expenditures for medical services, education, home improvements, appliances, etc. The customer is issued a PLC identification card and PLC checks which enable the customer to write checks for purchases or obtain cash advances from FAC branches. Since the checks are drawn on the First National Bank of Allentown, Pennsylvania, the PLC ID card is utilized to help ensure a high degree of acceptability of PLC checks.
PLC customers are sent a statement each month stating the minimum monthly payment, an account summary of checks written, cash advances received, and payments made for the billing period. The finance charge is computed on the average daily outstanding balance. PLC customers may use any or all of the available credit at any time but incur finance charges only on the outstanding balance. As the customer makes monthly payments, his or her available credit is restored. The PLC program is available in most of the 42 states in which FAC operates.
FAC seeks a ruling on the following:
At issue in this request for a declaratory ruling is section 1(e) of Act No. 379 of the Public Acts of 1984, an act which was signed into law by Governor Blanchard on December 28, 1984. Section 1(e) reads as follows:
""Credit card" or "charge card" means any card or device issued by a licensee under a credit card arrangement which arrangement gives to a cardholder the privilege of obtaining credit from the card issuer or any other person in purchasing or leasing property or services, obtaining credit or loans, or otherwise."Discussion of Law
Section 1(e) of 1984 PA 379, in defining "credit card" or "charge card", includes the following language: "...any card or device issued by a licensee under a credit card arrangement..." (emphasis supplied). The use of the term device in the language reflects a recognition by the Legislature that licensees under the act might wish to provide their customers with a means of accessing their lines of credit other than the traditional access by card. The question that must be answered therefore, is whether the PLC ID card and blank checks which are provided to PLC customers constitute a "device" within the meaning of Section 1(e). The PLC program as described herein provides customers with the same type of revolving credit services that is provided for credit card holders. There is a preapproved revolving line of credit which is available to each PLC customer. The customer at his or her option can access this line of credit up to the stated limit to purchase goods or services or to obtain cash advances.
The major difference between the PLC program and traditional credit card programs, is the means by which customers access their line of credit. In the case of a traditional credit card program the customer presents his or her credit card at the place of purchase as a means of paying for goods received or services rendered. The merchant uses the credit card to produce a charge slip bearing the customer's signature. The charge slip is presented to the card issuer as evidence of the transaction whereupon the issuer advances credit to the customer by paying for the obligation on behalf of the customer. With the PLC program, the customer writes a PLC check which along with the PLC ID card is presented to the merchant to pay for goods received or services rendered. The merchant accepts the check and forwards the check through the bank clearing network to the First National Bank of Allentown. The check, in this case, performs a function that is in substance identical to the charge slip in the case of a traditional credit card program. The net result of the transaction in this case is identical to the traditional credit card program. In both cases, the customer can conveniently access his or her line of credit by presenting a credit card or other device to a merchant or to a branch office of the creditor in order to obtain a cash advance.
In a letter dated March 25, 1985, FAC informed the Bureau that in their opinion their PLC program does not fall within the definition of "credit card" found in Section 226.2(15) of Regulation Z (Truth in Lending) 12 CFR 226 issued by the Board of Governors of the Federal Reserve System. Section 226.2(15) reads as follows:
""Credit card" means any card, plate, coupon book, or other single credit device that may be used from time to time to obtain credit."The Official Federal Reserve Board Staff Commentary to section 226.2(15) indicates that the definition covers credit cards or devices which involve the possibility of repeated use. The commentary indicates that checks and similar instruments that can be used "only once to obtain a single credit extension" are not credit cards as that term is used in section 226.2(15). FAC states that as a result of this exemption, their PLC program which currently operates in several states need not comply with provisions of Regulation Z which pertain to the mailing of unsolicited credit cards, limitations of liability for unauthorized use, offsets, discounts, and the crediting of refunds, etc.
The definition of credit card found in section 226.2(15) of Regulation Z is narrower in scope than the definition contained in section 1(e) of 1984 PA 379. The definition in PA 379 includes no requirement that the credit card or other device be a single credit device. Therefore, it is the Bureau's position that even though FAC's PLC program may fall outside of the definition of credit cards contained in Regulation Z, it clearly falls within the broader definition of credit card used in section 1(e) of 1984 PA 379.
It must be recognized, however, that if FAC established its PLC program under 1984 PA 379, all the requirements of that act must be complied with including section 11. Section 11 of 1984 PA 379 reads, in pertinent part, as follows:
"(1) A licensee shall make or give to the consumer the disclosures, information, and notices required by the truth in lending act for a credit card arrangement that is governed by this act.
"(2) To the extent that the truth in lending act does not impose duties or obligations upon a person for an account established for personal, household, or family purposes in a credit card arrangement that is governed by this act, the person shall make or give to the consumer disclosures, information, and notices in accordance with the federal truth in lending act with respect to the credit transaction."Our interpretation of Section 11 is that it would require FAC, in instituting its PLC program in Michigan under PA 379, to comply with all the credit card provisions of Regulation Z which pertain to consumer disclosures, information and notices even though the program may not be included in the definition of "credit card" contained in section 226.2(15) of Regulation Z.
For the reasons set forth above it is the position of this Bureau that a personal ID card along with blank checks issued to a customer in connection with FAC's PLC program described herein, would be within the meaning of the term "device" as used in defining "credit card" or "charge card" in section 1(e) of 1984 PA 379. A licensee under 1984 PA 379 could institute a program similar to FAC's PLC program provided it complies with all provisions of the act including section 11.
Eugene W. Kuthy, Commissioner