Consumer Financial Protection Bureau issues Synchrony approval order to facilitate the use of dual usage credit cards
By Pavithra R
The Consumer Financial Protection Bureau (Bureau) issued a compliance assistance sandbox (CAS) approval order to Synchrony Bank (Synchrony), a federal savings bank and a wholly-owned subsidiary of Synchrony Financial Inc., regarding their proposal to develop a dual-feature credit card.
Synchrony’s application focuses on the secured credit card market; specifically, it concerns a proposed “dual-feature credit card account” (DFCC). Synchrony intends to offer a lower rate on secured use with the opportunity for eligible account holders to graduate to unsecured use after 12 months. Therefore, as with other secured credit cards, a consumer must provide a security deposit to open a DFCC card account. After at least one year, a DFCC customer that clears certain eligibility thresholds is offered the opportunity to graduate to use the unsecured feature of the account on terms that were disclosed at the opening of the DFCC account and then redisclosed in connection with the opportunity to opt-in.
The card is designed for consumers with a limited or damaged credit history as a tool that can be used to establish or reestablish a favourable credit history. The DFCC, as described by Synchrony, seeks to provide transparency about the cost difference between the secured and unsecured features, while making the process of graduating to unsecured use as seamless, clear, and straightforward as possible for the consumer that wants to take advantage of any opportunity to graduate.
Issued under the CAS Policy from last year, a CAS approval offers an entity confronting regulatory uncertainty a “safe harbor” from liability under specified legal provisions. Entities are provided safe harbor for specified conduct that the Bureau finds compliant with those legal provisions, subject to good faith compliance with the terms of the approval. The CAS Policy implements the existing safe harbor approval mechanisms provided under the Electronic Fund Transfer Act, the Equal Credit Opportunity Act, or as in this case, the Truth in Lending Act. The duration of this approval is three years.
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