Page 36 - May 23, 2024 Bulletin

BUSINESS PARTNERfeature article

When is a

Card a Card?

Roger Morris, Jr.

JD, CIPP
Associate General Counsel
Compliance Alliance

A card is either a credit card or a debit card. What about a home or other means of access to a consumer's account that may be used to
equity line of credit (HELOC) access card? Is that a credit card initiate electronic funds transfers. A HELOC access card does initiate
or a debit card? Or something in between? If it's in between, electronic funds transfers from a consumer's HELOC account so they are
does Regulation E apply? Regulation Z? It is easy to talk yourself seemingly an access device. However, "account" is a specific term in the
in circles, but let's make sense of it once and for all. context of Regulation E and a crucial part of the definition of an access
device. It means:
To begin, why is this a conversation worth having in the first place? You
may know the answer to this question and think this was a compliance "'Account' means a demand deposit (checking), savings, or other
officer's version of child's play. A card's definition as a debit or credit consumer asset account (other than an occasional or incidental credit
card has worthwhile implications. It would dictate what disclosures are balance in a credit plan) held directly or indirectly by a financial
necessary. In the vast alphabet soup of regulations, each has its onerous institution and established primarily for personal, family, or household
disclosure requirements, and Regulations E and Z (the two that apply purposes."
in these areas) have plenty of requirements. Furthermore, it dictates
how errors are resolved. Regulation E's error dispute rules are highly A HELOC can undoubtedly be for personal, family, or household
consumer-favorable; not that Regulation Z's aren't, but Regulation E has purposes, but let me draw your attention to the words "asset account"
a more formal investigation requirement. These formalities would apply (see the bolded above). A loan account is not an asset account. A
if Regulation E applied to the HELOC's access card transaction. We checking account is an asset account because you wholly own the funds
could go on and on about what each regulation independently entails but in the account. They add to your net worth. A loan account is a liability.
let’s get back to cards. You will have to pay those funds back later, so the withdrawal of those
funds subtracts from your net worth. We could call loans a liability
Debit and credit cards look similar, but, as anyone reading this would account, but that makes them less marketable.
know, there are fundamental differences. A debit card takes funds out of
your bank account, while a credit card is linked to a credit line that you So generally, a HELOC is not an account under Regulation E, even if it
pay back later. A HELOC access card blurs the lines. With a HELOC, can make electronic transfers because it's a loan account and not an asset
you may have an account with funds that seem identical to any other account. So, this cannot meet the Regulation E definition of a "debit
asset account. You have to pay those funds back at a later date. So, what card" or "access device," and, in turn, Regulation E is not applicable. An
exactly is a HELOC access card? To decipher this mystery, let's look at access device initiates transfers from an “account,” and a HELOC is not
the regulation. For the regulatory definition of a credit card, we turn to an “account” for Regulation E purposes. Therefore, the bank wouldn't be
Regulation Z: required to give Regulation E disclosures with a HELOC access device,
but that doesn't mean it could not be done. If you're looking to provide
"(i) Credit card means any card, plate, or other single credit device that customers with the rights disclosed in Regulation E disclosures, you
may be used occasionally to obtain credit." could but it would be an internal policy decision. It is also worth noting
that this is the typical way HELOCs are set up, but there can be other
This includes HELOC access cards, which may be used to obtain credit structures that may change the analysis above. As always, if you have any
from a line of credit. Regulation commentary further supports this point. specific fact scenarios you would like to discuss, members are always free
to reach out to us on the Compliance Hub Hotline.
"i. Examples of credit cards include … A card that guarantees checks or
similar instruments, if the asset account is also tied to an overdraft line or
if the instrument directly accesses a line of credit."

So, an access card is a credit card under Regulation Z. Regulation Z
applies. But this still leaves the question of whether Regulation E also
applies. Regulation E applies to "access devices." These are cards, codes,

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