The Check’s in the Mail

By Steven D. Ginsburg and Kenneth B. Franklin

In the consumer loan context, one issue that frequently arises between creditors and debtors is whether the debtor has made a timely payment on his or her account. Both the Truth in Lending Act (“TILA”) and Regulation Z, which implements TILA, speak to this issue, but appear to contradict each other when it comes to credit card accounts.

Under Regulation Z,

[i]f a creditor accepts or receives payments made on the due date by a method other than mail, such as electronic or telephone payments, the creditor is not required to treat a payment made by that method on the next business day as timely, even if it does not accept mailed payments on the due date.

12 C.F.R. § 226.10(d)(2). Thus, if the due date falls on a holiday or weekend, but the creditor refuses to acknowledge payments received by mail on the following business day, then the creditor need not consider payments made online or via the telephone the following business day as timely.

TILA, however, mandates a different result. Under TILA,

[i]f the payment due date for a credit card account under an open end consumer credit plan is a day on which the creditor does not receive or accept payments by mail (including weekends and holidays), the creditor may not treat a payment received on the next business day as late for any purpose.’

15 U.S.C. § 1637(o)(2). Therefore, if a creditor does not “accept or receive” payments by mail on a holiday or over the weekend, the creditor must consider payments received on the following business day as timely, whether the debtor mailed the payment or made it via the internet or telephone. Unlike Regulation Z, which gives a creditor more leeway in establishing late penalties, TILA is much more restrictive.

Despite what might appear to be an irreconcilable conflict between TILA and Regulation Z, there are some important distinctions. First, TILA only applies to credit card accounts, while Regulation Z applies to all open-end consumer loans. Accordingly, there are open-end consumer loans to which Regulation Z would apply but not TILA. TILA also turns on whether a creditor “receives or accepts” payments by mail on holidays or the weekend, while Regulation Z turns on whether the creditor accepts or receives payments by a method other than mail. If the creditor retrieves mail on Saturdays, Sundays and holidays, which some creditors do, then the creditor can effectively avoid TILA’s restrictions and rely instead on Regulation Z. On the other hand, if a credit card account creditor merely relies on standard weekday delivery from the post office, then TILA will control. In either case, it is important to develop a late fee policy with both TILA and Regulation Z in mind to ensure no inadvertent violations occur.