Setting Up Galileo Secured Credit

When setting up a Galileo Secured Credit product, you must work with the sponsor bank and card network to create a business plan that meets bank and network requirements. This guide describes considerations for Galileo Secured Credit products.

Setup for Dynamic Funding

Setup for Galileo Secured Credit: Dynamic Funding is similar to setup for a standard Galileo Secured Credit product. However, during configuration, a program parameter is set to indicate that the product will use Dynamic Funding. When configured, this parameter determines how funds flow when a payment is authorized.

The follow are other considerations for Dynamic Funding:

  • Mastercard exclusive — Dynamic Funding is currently available for Mastercard products only.
  • Primary accounts — Unlike standard secured credit, Dynamic Funding requires primary accounts to be in your program within the Galileo system.
  • Monthly billing cycle — You set a monthly billing cycle and bill customers for the full amount owed when the payment is due. Sweeping funds more than once per month may violate regulations.
  • Auto-pay considerations — Automatic payment options that move funds out of the collateral account each month may result in the loss of your credit builder status because credit bureaus may reject your program data. See Considerations for automatic payments for details.
  • Credit regulations — The terms and conditions of your program must align with Regulation Z and the Credit Card Accountability Responsibility and Disclosure (CARD) Act.

Obtaining bank and network approval

Before you can offer a Galileo Secured Credit product, you must have a sponsor bank. Your issuing bank may not support secured credit. If this is the case, you will need to use a separate sponsor bank for Galileo Secured Credit.

When you set up Galileo Secured Credit, you are adding a new program with new BINs. You will need approval for the new BINs from both your sponsor bank and from the card network. Because charge cards are not revolving credit, it is important to be clear about why you want a credit BIN. You can ask your Galileo representative to assist you when you communicate with the card network.

Underwriting and cardholder qualifications

Galileo does not provide underwriting. You must partner with a third-party underwriter to insure the accounts and to determine what qualifications a cardholder must have, such as minimum FICO score and minimum age.

Fees and interest

If you decide to set up fees for your Galileo Secured Credit product, you determine what kinds of fees to assess, the fee amounts, and when and how to assess them. For secured credit products, Galileo supports either monthly or annual fee assessment with the Assess Fee endpoint. Your Galileo representative can help you set up fee types for your program.

If you charge interest, you will need to calculate the amount and assess it from your own system. While there is a pending dispute on an account, you are responsible for stopping the accrual of interest and for adjusting the stoppage when the dispute is resolved.

Collateral account and money movement

Movement of funds into and out of the collateral account depends on whether Dynamic Funding is configured for the product.

Galileo Secured Credit with Dynamic Funding: For Dynamic Funding products, movement of funds into the collateral account is automated by Galileo.

  • The primary account that funds are moved out of must be a Galileo-hosted account.
  • When a cardholder makes a purchase with the charge card, the amount for the purchase moves from the primary account to the collateral account.
  • Movement of funds out of the collateral account is not automated. Your sponsor bank may have conditions for allowing customers to move funds out of the collateral account.

Galileo Secured Credit without Dynamic Funding: For standard secured credit products, movement of funds into the collateral account is not automated by Galileo.

  • The account that funds are moved from must be an account capable of holding and transferring money, such as a Galileo-hosted DDA, savings account, or an external spending account. Other types of accounts are possible as well.
  • You determine when and how the cardholder can move funds into and out of the collateral account.
  • You can move funds into the collateral account with a Create Account Transfer request.
  • You can move funds out of the collateral account with either a Create Adjustment or a Create Payment request.
  • Your sponsor bank may have conditions for allowing customers to move funds out of the collateral account.

Delinquency, default, and collections

For secured credit products that have a charge card, Galileo determines delinquency based on the first day of the customer's billing cycle and payment rules on the account. You determine when to send an account to collections. You may consider setting up a grace period before a delinquent account is defaulted. It is also common to set a spending block on delinquent accounts. Set up your internal system according to your business plan.

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Note

Galileo can handle reporting only for secured credit products that operate as a charge card with the full amount due each period, and not other credit products like secured cards with revolving credit.

If you have Galileo prepare a Metro 2 credit report for you, Galileo will include each delinquent account in the report. For general information on credit reporting, see Reporting to credit bureaus in this guide.

You provide your own terms and conditions to state what happens when a cardholder does not pay back the credit line. Galileo does not automatically move funds from the collateral account to pay back the amount owed. If necessary, you may have a debt facilitator assist with collections. Galileo does not recommend that you close the account when the cardholder defaults, but that you block spending instead.

Reporting to credit bureaus

There is no legal requirement to report credit account activity to the three credit bureaus. Whether you report the charge card activity to the credit bureaus depends on whether you believe your cardholders will benefit from it. Reporting to the bureaus will most likely help your cardholders establish or improve their credit ratings because they are likely to have a low utilization rate relative to their credit limits. The boost a cardholder can expect in this case is around 35 points at first, and then gradual increases thereafter.

Metro 2 reporting at Galileo

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Note

Galileo can handle Metro 2 reporting only for secured credit products that operate as a charge card with the full amount due each period, and not other credit products like secured cards with revolving credit.

Galileo can prepare a Metro 2 credit report for you and then submit the report to the credit bureaus. This report is automatically generated once per month, the day after the customer’s billing cycle ends. To prepare the credit report, you will need to perform these tasks:

  • Set up relationships with each of the credit bureaus to obtain a subscriber ID. This is a three-way contract between each of the three bureaus, you, and Galileo.
  • For products without Dynamic Funding, ensure that the credit limit has been updated to the correct amount for each account. See Setting the credit line under Developer Setup for Secured Credit.

Account closure status reporting

When a customer’s Galileo Secured Credit account closes, you can indicate the account closure status using Galileo’s Program API. If Galileo handles your credit reporting, Galileo will include the status in the Metro 2 report. A customer’s status at account closure may affect their credit score.

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Note

Galileo can handle reporting only for secured credit products that operate as a charge card with the full amount due each period, and not other credit products like secured cards with revolving credit.

Account closure statuses indicate whether the amount owed on the credit line was paid and who initiated the closure (the customer or the issuer). Account closure statuses are:

  • Account is unpaid, closed by the issuer, and charged off
  • Account is unpaid, closed by the issuer, and is in internal collections
  • Account takeover fraud, account closed by the issuer
  • Account is paid and closed by the issuer due to inactivity
  • Account is paid and closed at the customer’s request

For developer instructions to send account closure statuses see Reporting account closure status under Developer Setup for Galileo Secured Credit.

Delinquent account closures and reporting

You may set a policy to state that, when an account is delinquent, the account is closed, and the funds from the collateral account are used to pay the amount owed. If you do this, and Galileo generates your Metro 2 credit report for you, Galileo must report the account closure and delinquency to the credit bureaus.

If the account is closed after the report is sent, Galileo will not include the account in future reports. If the customer wants to reopen the account, you must create a new account instead and Galileo will report the new account to the credit bureaus. However, if you reopen the account before Galileo sends the report, Galileo will continue to include the account in future reports.

Bankruptcy reporting

Galileo offers a feature for bankruptcy reporting to credit bureaus. Clients can request the Bankruptcy Reporting guide for more information.

Chargebacks and disputes

For charge cards associated with a secured credit product, you may be able to use the same chargeback process that you have for debit cards if the card network is the same. However, you are responsible for setting up your own internal process to handle disputes for fees and interest for the secured credit product. There is no provisional credit for a charge card.

Statements and invoices

You can use RDFs and your own internal reporting to generate statements and invoices according to your agreement with your sponsoring bank. You can change the frequency of invoices depending on how far ahead you can float transactions. For example, you could have two billing cycles per month, or set up weekly billing cycles. See Billing cycle configurations in this guide for more information.

Considerations for automatic payments

With Galileo Secured Credit: Dynamic Funding, clients often ask if it is possible to automatically pay off the customer's credit balance at billing time using the funds from the collateral account. While this would decrease held debt and ensure that more customers pay on time, there are two problems with this scenario:

  • It likely conflicts with the Durbin amendment, which regulates interchange for debit products. With credit, the sponsor bank holds the debt longer, typically up to 30 days, and the Durbin interchange rules do not apply to credit. If you reduce the time that debt is held while receiving credit interchange (which is significantly higher than debit), your program diverges from the purpose of the Durbin amendment. You should check with your own legal or compliance resources for advice regarding your specific product.
  • It may conflict with your agreement with the credit bureaus. If your product is a credit-building program, credit data must be reported monthly to the credit bureaus. If you set up automatic payments from the collateral account, you are removing customer's time risk and funds risk. In the US, the average secured credit program has a 7% delinquency rate. If you present a 0% delinquency rate, the credit bureaus reject your data. Again, you should check with your own legal and compliance resources for advice regarding your specific product.

Instead, Galileo recommends configuring your program with a 30 day billing cycle, like other credit cards. You can provide a method for customers to set up automatic payments from their primary DDA, which removes the time risk, but not the funds risk. You may also provide a method for customers to manually make a payment from the collateral account, which removes the funds risk, but not the time risk.

CST support for Galileo Secured Credit

This section describes features in the CST related to secured credit.

Billing cycles

CST fieldLocationDescription
Next Billing DateAccount Info > Account Details > Summary InformationThe customer’s next billing cycle start date.

Galileo setup

ParameterLevelDescription
ALWNBProductControls whether a call to the Create Adjustment endpoint can drive an account balance negative. When this parameter is set to 1, a call to the Create Adjustment endpoint can drive the balance negative.
BCDAYProductControls the length of time to wait after the bill cycle start date before setting the bill cycle and assessing fees. Use an integer to specify the number of days or MONTH to indicate a one month bill cycle.
CYCLEProductControls whether to assess maintenance fees monthly (MON) or yearly (YER). Weekly assessment is not available for secured credit products. Works in conjunction with CYMET.
CYDAYProductSpecifies the day of the month to assess fees when CYCLE is set to MON. Valid values are 1–28. Weekly assessment is not available for secured credit products.
CYMETProductControls whether to assess a fee by account (PRN) or balance (bal_id). This parameter also controls what happens if the balance is lower than the fee amount. Values for secured credit products are:
- A — Set an independent bill cycle for each account and assess fees by account.
- B — Set the same bill cycle for all accounts on the same balance and assess fees by balance.
- HAD — Hybrid account. Assess fees by account and defer the fee if it will drive the balance negative.
- HAP — Hybrid account. Assess fees by account and charge a partial fee if the entire fee will drive the balance negative. This effectively takes the balance to 0.
- HBD — Hybrid account. Assess fees by balance and defer the fee if it will drive the balance negative.
- HBP — Hybrid account. Assess fees by balance and charge a partial fee if the entire fee will drive the balance negative.

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