Disclosure requirements related to a new law affecting consumers’ options to cancel private mortgage insurance under Regulation Z, or Trust-In-Lending (TILA) laws, were tightened and clarified last week when the Federal Reserve Board staff issued new commentary.

The new staff commentary also increases the tolerance level for loans to qualify for the special rules dealing with high yield credits. Other issues touched on include treatment of combined credit/debit or credit/stored value cards, and required periodic disclosures for open-end credit.

The changes to Reg Z were prompted by the new homeowners protection law, which was passed by Congress last year. It allows borrowers to cancel private mortgage insurance (PMI) under some circumstances and requires lenders to terminate PMI automatically when other conditions are met.

The new staff commentary explains that the cost of PMI must be reflected in the payment schedule disclosure through the time of automatic termination under the new law, or other applicable law, and no further. The new commentary also makes clear that any assumptions required to be made in order to calculate the time of automatic termination for adjustable-rate mortgages should be made consistently with assumptions made for other TILA purposes, according to an industry lawyer.

In another provision dealing with mortgage practices, the commentary establishes new tolerances for the points-and-fees test for loans qualifying as "high-yield." The new figures reflect cost-of-living adjustments, and require that loans with associated points and fees which are the greater of $441, or 8% of the total loan amount, are subject to high-yield disclosure provisions.

The new commentary also notes that in making disclosures for open-end credit, prior-cycle finance charge adjustments can be calculated into the annual percentage rate (APR) for the subsequent period, or they can be disclosed as a separate item and not included in the calculation of the APR for the subsequent period.

Regarding combined credit/debit or credit/stored-value cards, the new commentary expands the definition of credit card to include cards with both credit and non-credit features. The lawyer said that issuance of a card with credit features at the time of issuance, even if such a card also has noncredit features, may not be unsolicited.

On the other hand, the lawyer said, issuance of a card with non-credit features that the consumer later activates as a credit card may be unsolicited.

Wells Fargo will be rolling out a new program this summer to help small business customers get their store fronts on the Web, about the same time two large corporate clients will roll out their larger, multi-lingual bank-enabled sites.

The California-based giant started up a special unit to focus on Internet commerce in January, although it has worked with business customers on the Web since 1995 and currently has more than 300 Internet merchant customers. It is now working on a system to integrate all the basic components a small business would need to get set up on the Internet, to act as the "broker" for the client.

"If you think about your small business segments, their primary need is a trusted, knowledgeable partner. ‘I need to get a URL. I need to get a Web-page designer, a payment processor.’ Most small businesses don’t know how to do that. They’ll have to contract with between seven and nine companies. We think we have an advantage. We can bring the strategic partners together so we can create a cohesive opportunity for the small business," said Michelle Banuagh, vice president with the e-commerce group. Although the bank now refers small business clients getting onto the Web to other companies for advice, the new program, called Wells Fargo iBox and expected to roll out in June, would be a packaged solution to the site development quandary.

For the large corporate business clients who are mostly already established on the Web, Wells has just unveiled the fruits of a partnership with Mitsubishi last month to develop merchant Web sites that can crack foreign markets. The new Web sites can deal in foreign currency and overcome the language barrier by displaying information in the local language. Wells takes the local currency by credit card, converts the payment into dollars for the U.S. company, and the bill appears in the local currency on the customer’s credit card bill. Formerly, if a customer bought a product over the Internet in yen, for example, the charge appeared on his or her bill in dollars, which led to some confusion.

The new feature, Banaugh said, goes a long way toward helping the merchant reduce customer service telephone calls and contributes to customer satisfaction. Wells and three more large U.S.-based companies are working on sites, which are looking for a late summer launch in preparation for the holiday season.

Congressional work on bankruptcy reform is intensifying, with Senate and House panels planning markups this week on legislation similar to that which failed to pass Congress last year.

But the bills are different, with the Senate’s more bipartisan bill substantively diluting the "means test" provision in last year’s bill which was very strongly opposed by consumer groups, Democratic members of the Senate and the Clinton Administration. That opposition is what killed the bill, which is supported by the credit card industry.

Rep. George Gekas, R-Penn., head of the commercial and administrative law subcommittee of the House Judiciary Committee, has scheduled a markup on his more restrictive bill for March 24-25. In the Senate, Sen. Charles Grassley, R-Iowa, chairman of the Judiciary Subcommittee on Administrative Oversight and the Courts, scheduled a markup of his bill March 25. The Senate Republican leadership is indicating it wants the bill on the floor in April, with or without Democratic support. But Grassley does have Sens. Robert Torricelli, N.J., and Joe Biden, Del., as Democratic co-sponsors.

Even though House Republicans have been able to win significant Democrat support for their bill, it is still likely to face opposition if the means-test provision is included.

The seeds of a compromise on the House bill could be in the form of legislation recently introduced by Rep. John LaFalce, D-N.Y., ranking minority member of the House Banking Committee. LaFalce, who testified last week in support of his bill before Gekas’s panel, is calling for far greater disclosure by credit card companies of the potential pitfalls of credit card debt.

The bill requires a more complete disclosure of all credit card terms and costs, including "teaser rates." It also bans credit card issuers from canceling an account or imposing new fees on card holders who routinely pay off monthly card balances in full. The bill also prohibits credit card companies from issuing credit card accounts to people under 21 years of age, except with parental approval or evidence of means of payment.

There are four main differences between the two bills. First, the means test in the Senate version gives bankruptcy judges greater discretion in considering whether to transfer a debtor from Chapter 7, which means the debts are fully discharged, to Chapter 13, where the debtor needs to repay all or some of the debt. The Senate version also has greater consumer protections designed to lessen pressures from creditors for debtors to "reaffirm" debt that would normally be discharged in bankruptcy, plus greater protection for child support payments. Finally, it has a reduction in the amount of unsecured debt that would be made nondischargeable by the new law.

Needs-based bankruptcy legislation has been introduced in the House that is virtually identical to a bill bottled up in the closing days of the last Congress by the Clinton Administration and liberal Democrats. But, unless major concessions are made by the financial services industry coalition that is pumping huge bucks into lobbying for the bill, congressional staffers believe it will mostly likely suffer the same fate as last year.

The bill’s supporters are primarily credit card lenders, although the mortgage industry is supporting provisions that bar "cramdowns," what the industry terms "inappropriate" reductions in the value of secured residential liens. That could be crucial if a downturn in the economy places in doubt the ability of unemployed consumers to repay home equity loans.

The core of the bill is a provision that requires courts to take a debtor’s income, expenses, obligations and any special circumstances into account when determining whether the debtor has the capacity to repay a portion of his or her debts. If it is determined they have the capacity to repay some of the debts, they would be barred from discharging of all debts under Chapter 7 of the bankruptcy code.

However, the bill preserves the right of any filer earning less than the median national income–currently about $51,000 for a family of four–to automatically choose Chapter 7 or Chapter 13, which provides court protection while the debtor reorganizes his debts. The primary sponsor of the new bill, Rep. George W. Gekas, R-Pa., said this provision "preserves, protects and enhances the ability (of lower income families) to obtain a legitimate ‘fresh start’ from bankruptcy."

For lenders, the bill requires more disclosure about the effect of paying only the minimum payment on credit cards and other non-secured debt, limits the ability of a creditor to terminate an account just because a consumer pays his or her bill in full each month, and establishes new creditor penalties designed to encourage good-faith pre-bankruptcy settlements with debtors.

The administration is being supported in its opposition to the bill by such consumer groups as the Consumer Federation of America. "This flawed approach is being pushed by those who want to please powerful members of the credit card lobby," said a CFA official. "It fails consumers because it leaves families in crisis stranded while giving credit card companies free reign to continue to engage in misleading and coercive practices."

Among provisions being sought by the consumer group is "a balanced approach" that includes meaningful disclosures about the true price of credit and proper protection from credit company abuses. They also want tight restrictions on marketing credit cards to minors who may have no ability to repay, outlawing live checks and shutting down the practice of credit card companies that cancel credit cards to consumers who pay off on time.

The consumer groups say credit card disclosures and marketing practices, including what they term the "detrimental" treatment of small businesses, also need to be addressed.

The consumer groups cite a recent study from the American Bankruptcy Institute which shows that only 3% of those who file for bankruptcy have the ability to repay their debts–a far lower proportion than claimed by the credit card industry