Accessing HELOC Accounts: DDA Accounts, Debit v. Credit cards, and Unsolicited Delivery

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Question:

We are in the process of setting up the process that allows our customers to access their HELOCs via a Visa Card. The card is actually a debit card though - in that it first accesses the customer's DDA account. That particular DDA account is set up and used only for this process, and works in the following manner: The customer uses card that taps into a DDA account that has a zero balance. The account automatically advances the amount of the transaction into the DDA account. So the account is debited, shows a negative balance, which is then zeroed out by the auto transfer from the HELOC. My question is two fold: With this type of process is our card considered a 'credit card'? And if not, and it is considered an actual debit card, can we send cards to existing customers unsolicited?

Answer:

Answer by John Burnett:

Is there really a deposit account involved, or is the "DDA account" merely the processing vehicle used to get the transaction to the HELOC? In other words, does the customer agree to a deposit account contract?

If there is a true deposit account involved, for which the customer contracted, and you've disclosed all that, there may be an argument that the issuance of the access device can be unsolicited under Regulation E, with all of the cautions and restrictions attendant upon that issuance.

If, however, the customer knows not the deposit account, and only knows about the HELOC, or has not deposit account contract, you're dealing, I believe, in a credit card and the restrictions on issuing in Regulation Z.

Answer:

Answer by Rick Wemmers:

A company has registered a very, very similar sounding product under the copyright, trademark rules. Are you in violation of using this idea?

First published on BankersOnline.com 04/07/03