[Federal Register Volume 74, Number 202 (Wednesday, October 21, 2009)]
[Proposed Rules]
[Pages 54124-54332]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-23733]



[[Page 54123]]

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Part II





Federal Reserve System





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12 CFR Part 226



Truth in Lending; Proposed Rule

Federal Register / Vol. 74 , No. 202 / Wednesday, October 21, 2009 / 
Proposed Rules

[[Page 54124]]


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FEDERAL RESERVE SYSTEM

12 CFR Part 226

[Regulation Z; Docket No. R-1370]


Truth in Lending

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Proposed rule; request for public comment.

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SUMMARY: The Board proposes to amend Regulation Z, which implements the 
Truth in Lending Act, and the staff commentary to the regulation in 
order to implement provisions of the Credit Card Accountability 
Responsibility and Disclosure Act of 2009 that are effective on 
February 22, 2010. This proposal would establish a number of new 
substantive and disclosure requirements to establish fair and 
transparent practices pertaining to open-end consumer credit plans, 
including credit card accounts. In particular, the proposed rule would 
limit the application of increased rates to existing credit card 
balances, require credit card issuers to consider a consumer's ability 
to make the required payments, establish special requirements for 
extensions of credit to consumers who are under the age of 21, and 
limit the assessment of fees for exceeding the credit limit on a credit 
card account.

DATES: Comments must be received on or before November 20, 2009.

ADDRESSES: You may submit comments, identified by Docket No. R-1370, by 
any of the following methods:
     Agency Web Site: http://www.federalreserve.gov. Follow the 
instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     E-mail: regs.comments@federalreserve.gov. Include the 
docket number in the subject line of the message.
     Facsimile: (202) 452-3819 or (202) 452-3102.
     Mail: Jennifer J. Johnson, Secretary, Board of Governors 
of the Federal Reserve System, 20th Street and Constitution Avenue, 
NW., Washington, DC 20551.
    All public comments are available from the Board's Web site at 
http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as 
submitted, unless modified for technical reasons. Accordingly, your 
comments will not be edited to remove any identifying or contact 
information. Public comments may also be viewed electronically or in 
paper form in Room MP-500 of the Board's Martin Building (20th and C 
Streets, NW.) between 9 a.m. and 5 p.m. on weekdays.

FOR FURTHER INFORMATION CONTACT: Jennifer S. Benson or Stephen Shin, 
Attorneys, Amy Burke, Benjamin K. Olson, or Vivian Wong, Senior 
Attorneys, or Krista Ayoub or Ky Tran-Trong, Counsels, Division of 
Consumer and Community Affairs, Board of Governors of the Federal 
Reserve System, at (202) 452-3667 or 452-2412; for users of 
Telecommunications Device for the Deaf (TDD) only, contact (202) 263-
4869.

SUPPLEMENTARY INFORMATION: 

I. Background and Implementation of the Credit Card Act

January 2009 Regulation Z and FTC Act Rules

    On December 18, 2008, the Board adopted two final rules pertaining 
to open-end (not home-secured) credit. These rules were published in 
the Federal Register on January 29, 2009. The first rule makes 
comprehensive changes to Regulation Z's provisions applicable to open-
end (not home-secured) credit, including amendments that affect all of 
the five major types of required disclosures: credit card applications 
and solicitations, account-opening disclosures, periodic statements, 
notices of changes in terms, and advertisements. See 74 FR 5244 
(January 2009 Regulation Z Rule). The second is a joint rule published 
with the Office of Thrift Supervision (OTS) and the National Credit 
Union Administration (NCUA) under the Federal Trade Commission Act (FTC 
Act) to protect consumers from unfair acts or practices with respect to 
consumer credit card accounts. See 74 FR 5498 (January 2009 FTC Act 
Rule). The effective date for both rules is July 1, 2010.
    On May 5, 2009, the Board published proposed clarifications and 
technical amendments to the January 2009 Regulation Z Rule (May 2009 
Regulation Z Proposed Clarifications) in the Federal Register. See 74 
FR 20784. The Board, the OTS, and the NCUA (collectively, the Agencies) 
concurrently published proposed clarifications and technical amendments 
to the January 2009 FTC Act Rule. See 74 FR 20804 (May 2009 FTC Act 
Rule Proposed Clarifications). In both cases, as stated in the Federal 
Register, these proposals were intended to clarify and facilitate 
compliance with the consumer protections contained in the January 2009 
final rules and not to reconsider the need for--or the extent of--those 
protections. The comment period on both of these proposed sets of 
amendments ended on June 4, 2009. Where relevant, the Board has 
considered the comments submitted in preparing this proposed rule and 
is republishing the proposed amendments with several revisions as 
discussed in V. Section-by-Section Analysis. The Board intends to 
finalize the amendments, with revisions as appropriate, in connection 
with this rulemaking.

The Credit Card Act

    On May 22, 2009, the Credit Card Accountability Responsibility and 
Disclosure Act of 2009 (Credit Card Act) was signed into law. Public 
Law 111-24, 123 Stat. 1734 (2009). The Credit Card Act primarily amends 
the Truth in Lending Act (TILA) and establishes a number of new 
substantive and disclosure requirements to establish fair and 
transparent practices pertaining to open-end consumer credit plans. 
Several of the provisions of the Credit Card Act are similar to 
provisions in the Board's January 2009 Regulation Z and FTC Act Rules, 
while other portions of the Credit Card Act address practices or 
mandate disclosures that were not addressed in the Board's rules.
    The requirements of the Credit Card Act that pertain to credit 
cards or other open-end credit for which the Board has rulemaking 
authority become effective in three stages. First, provisions generally 
requiring that consumers receive 45 days' advance notice of interest 
rate increases and significant changes in terms (new TILA Section 
127(i)) and provisions regarding the amount of time that consumers have 
to make payments (revised TILA Section 163) became effective on August 
20, 2009 (90 days after enactment of the Credit Card Act). A majority 
of the requirements under the Credit Card Act for which the Board has 
rulemaking authority, including, among other things, provisions 
regarding interest rate increases (revised TILA Section 171), over-the-
limit transactions (new TILA Section 127(k)), and student cards (new 
TILA Sections 127(c)(8), 127(p), and 140(f)) become effective on 
February 22, 2010 (9 months after enactment). Finally, two provisions 
of the Credit Card Act addressing the reasonableness and 
proportionality of penalty fees and charges (new TILA Section 149) and 
re-evaluation by creditors of rate increases (new TILA Section 148) are 
effective on August 22, 2010 (15 months after enactment). The Credit 
Card Act also requires the Board to conduct several studies and to make 
several reports to Congress, and sets forth differing time

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periods in which these studies and reports must be completed.

Implementation Plan

    On July 22, 2009, the Board published an interim final rule to 
implement those provisions of the Credit Card Act that became effective 
on August 20, 2009 (July 2009 Regulation Z Interim Final Rule). See 74 
FR 36077. As discussed in the supplementary information to the July 
2009 Regulation Z Interim Final Rule, the Board is implementing the 
provisions of the Credit Card Act in stages, consistent with the 
statutory timeline established by Congress. Accordingly, the interim 
final rule implemented those provisions of the statute that became 
effective August 20, 2009, primarily addressing change-in-terms notice 
requirements and the amount of time that consumers have to make 
payments. The Board issued rules in interim final form based on its 
determination that, given the short implementation period established 
by the Credit Card Act and the fact that similar rules were already the 
subject of notice-and-comment rulemaking, it would be impracticable and 
unnecessary to issue a proposal for public comment followed by a final 
rule. The Board solicited comment on the interim final rule; the 
comment period ended on September 21, 2009. The Board intends to 
consider comments on the interim final rule when finalizing this 
rulemaking implementing those provisions of the Credit Card Act that 
become effective February 22, 2010.\1\
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    \1\ The Board has already begun consideration of the comment 
letters received on the July 2009 Regulation Z Interim Final Rule. 
However, the review of the comment letters is ongoing, and 
accordingly the supplementary information to this proposal does not 
discuss the comments received. The Board anticipates addressing the 
comments in their entirety when it issues a final rule based on this 
proposal.
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    The Board intends to separately consider the two remaining 
provisions under the Credit Card Act regarding reasonable and 
proportional penalty fees and charges and the re-evaluation of rate 
increases, and to finalize implementing regulations in accordance with 
the timeline established by Congress, upon notice and after giving the 
public an opportunity to comment.
    To the extent appropriate, the Board has used its January 2009 
rules and the underlying rationale as the basis for its rulemakings 
under the Credit Card Act. The Board also intends to retain those 
portions of its January 2009 Regulation Z Rule that are unaffected by 
the Credit Card Act. The Board is not withdrawing any provisions of the 
January 2009 Regulation Z Rule or its January 2009 FTC Act Rule at this 
time. The Board anticipates that in connection with finalizing this 
proposed rule for those provisions of the Credit Card Act that are 
effective February 22, 2010, it will amend or withdraw those portions 
of the January 2009 Regulation Z Rule that are inconsistent with the 
requirements of the Credit Card Act. In addition, as discussed further 
in V. Section-by-Section Analysis, the Board is proposing to move the 
requirements in its January 2009 FTC Act Rule into Regulation Z and 
intends to withdraw the requirements adopted under Regulation AA, 
consistent with Congress's approach of amending the Truth in Lending 
Act.\2\ Finally, except as otherwise noted, the Board is considering 
comments received on the May 2009 Regulation Z Proposed Clarifications 
and plans to incorporate those final clarifications, to the extent 
appropriate, when it promulgates final rules pursuant to this proposal.
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    \2\ See also OTS Memorandum for Chief Executive Officers: Credit 
CARD Act: Interest Rate Increases and Rules on Unfair Practices 
(issued July 13, 2009) (available at http://files.ots.treas.gov/25312.pdf); NCUA Press Release: Working with Other Regulators on 
Credit CARD Act and UDAP Rule (issued July 1, 2009) (available at 
http://www.ncua.gov/news/press_releases/2009/MR09-0701.htm).
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Republication of Provisions of January 2009 Regulation Z Rule

    The Board has published four proposed or final rules in 2009 that 
amend or propose to amend Regulation Z's provisions applicable to open-
end (not home-secured) credit: the January 2009 Regulation Z Rule, the 
May 2009 Regulation Z Proposed Clarifications, the July 2009 Regulation 
Z Interim Final Rule, and the present proposal. The Board is aware that 
the existence of multiple concurrent Regulation Z rulemakings 
pertaining to open-end (not home-secured) credit has the potential to 
cause confusion. In particular, the Board understands that it may be 
difficult for interested parties to ascertain how the four proposed or 
final rules will read as an integrated whole once all final rules are 
adopted and effective.
    In order to more clearly illustrate the cumulative changes in the 
four proposed or final rules, the Board is republishing in this 
proposal all sections of Regulation Z from the four proposed or final 
rules that pertain to open-end (not home-secured) credit. As discussed 
further in this supplementary information, the requirements of the 
Board's January 2009 FTC Act Rule are also being incorporated into this 
proposal under Regulation Z, with proposed amendments as necessary to 
conform to the requirements of the Credit Card Act. The Board believes 
that this is the clearest way to present the proposed and final 
revisions to Regulation Z in an integrated format. The Board thinks 
that it is important that commenters be able to consider the changes 
included in this proposal in light of the complete package of changes 
effected by the Board's recent rulemakings pertaining to open-end (not 
home-secured) credit.
    The Board is not reconsidering the need for or the extent of the 
January 2009 Regulation Z Rule, except to the extent that it is 
inconsistent with the requirements of the Credit Card Act. Accordingly, 
although the Board is republishing the provisions of Regulation Z that 
pertain to open-end (not home-secured) credit in their entirety, the 
Board is requesting that interested parties limit the scope of their 
comments to the proposed changes, which are discussed in the 
supplementary information. As necessary, the Board has made technical 
and conforming changes to the regulatory text from the January 2009 
Regulation Z Rule in order to conform with the proposed regulations 
implementing the Credit Card Act. These changes are not substantive in 
nature and are therefore not discussed in detail in V. Section-by-
Section Analysis.
    The Board is not republishing in connection with this proposal 
several sections of the January 2009 Regulation Z Rule that are 
applicable only to home-equity lines of credit subject to the 
requirements of Sec.  226.5b (HELOCs). In particular, the Board is not 
republishing Sec. Sec.  226.6(a), 226.7(a) and 226.9(c)(1). These 
sections, as discussed in the supplementary information to the January 
2009 Regulation Z Rule, are intended to preserve the existing 
requirements of Regulation Z for home-equity lines of credit until the 
Board's ongoing review of the rules that apply to HELOCs is completed. 
On August 26, 2009, the Board published proposed revisions to those 
portions of Regulation Z affecting HELOCs in the Federal Register. See 
74 FR 43428 (August 2009 Regulation Z HELOC Proposal). In order to 
clarify that this proposed rule is not intended to amend or otherwise 
affect the August 2009 Regulation Z HELOC Proposal, the Board is not 
republishing several sections of the January 2009 Regulation Z Rule 
that apply only to HELOCs in this Federal Register notice.
    The Board anticipates, however, that a final rule will be issued 
with regard to this proposal prior to completion of

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final rules regarding HELOCs. Therefore, the Board anticipates that it 
will include Sec. Sec.  226.6(a), 226.7(a), and 226.9(c)(1), as adopted 
in the January 2009 Regulation Z Rule, in its final rulemaking based on 
this proposal, to give HELOC creditors clear guidance as to the 
applicable Regulation Z requirements between the effective date of this 
rule and the effective date of the forthcoming HELOC final rules.
    The Board is, however, republishing several provisions of general 
applicability to all credit subject to Regulation Z that were included 
in the January 2009 Regulation Z Rule, such as the definitions in Sec.  
226.2 and the rules regarding finance charges in Sec.  226.4. The Board 
notes that these provisions, and any other provisions applicable to 
HELOCs, could be subject to revision in connection with finalizing the 
August 2009 Regulation Z HELOC Proposal. In addition, on August 26, 
2009, the Board also published in the Federal Register proposed 
revisions to Regulation Z's provisions addressing closed-end credit 
secured by real property or a consumer's dwelling. 74 FR 43232 (August 
2009 Regulation Z Closed-End Credit Proposal). Among other things, the 
August 2009 Regulation Z Closed-End Credit Proposal includes several 
proposed revisions to Sec.  226.4, which addresses finance charges. 
This proposal is not intended to affect or withdraw any proposed 
changes to such provisions of general applicability included in either 
the August 2009 Regulation Z HELOC Proposal or the August 2009 
Regulation Z Closed-End Credit Proposal.
    Finally, the Board has incorporated in the regulatory text and 
commentary for Sec. Sec.  226.1, 226.2, and 226.3 several changes that 
were adopted in the Board's recent rulemaking pertaining to private 
education loans. See 74 FR 41194 (August 14, 2009) for further 
discussion of these changes. The Board is not soliciting comment on 
these amendments.
    When publishing a proposed rule for comment under Regulation Z, the 
Board generally denotes regulatory and commentary text proposed to be 
deleted by use of bolded brackets. Similarly, the Board generally 
denotes the proposed insertion of text with bolded arrows. For this 
proposal, the Board is not displaying proposed insertions and deletions 
of text using brackets and arrows. As noted above, the Board has 
published four proposed or final rules pertaining to open-end (not 
home-secured) credit under Regulation Z in 2009, many of which impact 
the same provisions, and therefore the Board believes that the use of 
brackets and arrows for just those changes introduced in this proposal 
could cause confusion.

Effective Date

    As noted above, the effective date of the Board's January 2009 
Regulation Z Rule is July 1, 2010. However, the effective date of the 
provisions of the Credit Card Act implemented by this proposal is 
February 22, 2010. Many of the provisions of the Credit Card Act as 
implemented by this proposal are closely related to provisions of the 
January 2009 Regulation Z Rule. For example, proposed Sec.  
226.9(c)(2)(ii), which describes ``significant changes in terms'' for 
which 45 days' advance notice is required, cross-references Sec.  
226.6(b)(1) and (b)(2) as adopted in the January 2009 Regulation Z 
Rule. In order to implement the Credit Card Act in a manner consistent 
with the January 2009 Regulation Z Rule, the Board intends to make the 
effective date for the final rule pursuant to this proposal February 
22, 2010. The Board is considering whether this effective date should 
apply to both the provisions of the January 2009 Regulation Z Rule that 
are not directly affected by the Credit Card Act that are included in 
the proposed rule as well as new and amended requirements proposed 
pursuant to the Credit Card Act.
    The Board recognizes that there are certain provisions of the 
January 2009 Regulation Z Rule that impose substantial operational 
burdens on creditors that are not directly required by the Credit Card 
Act. For such provisions, the Board is considering retaining the 
original mandatory compliance date of July 1, 2010, consistent with the 
effective date it adopted when the January 2009 Regulation Z Rule was 
issued. In particular, the Board is considering whether the original 
mandatory compliance date of July 1, 2010 would be appropriate for 
certain tabular or other formatting requirements applicable to account-
opening disclosures under Sec.  226.6(b), portions of the periodic 
statement under Sec.  226.7(b),\3\ disclosures provided with checks 
that access a credit card account under Sec.  226.9(b)(3), change-in-
terms notices provided pursuant to Sec.  226.9(c)(2), and notices of a 
rate increase due to a consumer's default, delinquency, or as a penalty 
pursuant to Sec.  226.9(g). The Board understands that creditors are 
already in the process of updating their systems in order to provide 
these disclosures in the appropriate tabular format by the July 1, 2010 
effective date of the January 2009 Regulation Z Rule, and that 
retaining a July 1, 2010 effective date for the formatting requirements 
associated with such disclosures may be appropriate. The Board solicits 
comment on this approach, as well as whether there are other provisions 
of this proposed rule that are not directly required by the Credit Card 
Act for which a mandatory compliance date of July 1, 2010 would also be 
appropriate. The Board also seeks comment on appropriate transition 
rules for the proposed amendments to Regulation Z.
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    \3\ The Board notes that the Credit Card Act does, however, 
require a tabular format for the repayment disclosures under 
proposed Sec.  226.7(b)(12), and accordingly does not intend to 
provide a July 1, 2010 mandatory compliance date for such formatting 
requirements.
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II. Summary of Major Proposed Revisions

A. Increases in Annual Percentage Rates

    Existing balances. Consistent with the Credit Card Act, the 
proposed rule would prohibit creditors from applying increased annual 
percentage rates and certain fees and charges to existing credit card 
balances, except in the following circumstances: (1) When a temporary 
rate lasting at least six months expires; (2) when the rate is 
increased due to the operation of an index (i.e., when the rate is a 
variable rate); (3) when the minimum payment has not been received 
within 60 days after the due date; and (4) when the consumer 
successfully completes or fails to comply with the terms of a workout 
arrangement. In addition, when the annual percentage rate on an 
existing balance has been reduced pursuant to the Servicemembers Civil 
Relief Act (SCRA), the proposed rule would permit the creditor to 
increase that rate once the SCRA ceases to apply.
    New transactions. The proposed rule would implement the Credit Card 
Act's prohibition on increasing an annual percentage rate during the 
first year after an account is opened. After the first year, the 
proposed rule would provide that creditors are permitted to increase 
the annual percentage rates that apply to new transactions so long as 
the creditor complies with the Credit Card Act's 45-day advance notice 
requirement, which was implemented in the July 2009 Regulation Z 
Interim Final Rule.

B. Evaluation of Consumer's Ability To Pay

    General requirements. The Credit Card Act prohibits creditors from 
opening a new credit card account or increasing the credit limit for an 
existing credit card account unless the creditor considers the 
consumer's ability to make the required payments

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under the terms of the account. Because credit card accounts typically 
require consumers to make a minimum monthly payment that is a 
percentage of the total balance (plus, in some cases, accrued interest 
and fees), the proposed rule would require creditors to consider the 
consumer's ability to make the required minimum payments.
    However, because a creditor will not know the exact amount of a 
consumer's minimum payments at the time it is evaluating the consumer's 
ability to make those payments, the proposal would require creditors to 
use a reasonable method for estimating a consumer's minimum payments 
and would provide a safe harbor that creditors could use to satisfy 
this requirement. For example, with respect to the opening of a new 
credit card account, the safe harbor would provide that it would be 
reasonable for a creditor to estimate minimum payments based on a 
consumer's utilization of the full credit line using the minimum 
payment formula employed by the creditor with respect to the credit 
card product for which the consumer is being considered.
    The proposed rule would also clarify the types of factors creditors 
should review in considering a consumer's ability to make the required 
minimum payments. Specifically, an evaluation of a consumer's ability 
to pay must include a review of the consumer's income or assets as well 
as the consumer's current obligations, and a creditor must establish 
reasonable policies and procedures for considering that information. 
When considering a consumer's income or assets and current obligations, 
a creditor would be permitted to rely on information provided by the 
consumer or information in a consumer's credit report.
    Specific requirements for underage consumers. Consistent with the 
Credit Card Act, the proposed rule prohibits a creditor from issuing a 
credit card to a consumer who has not attained the age of 21 unless the 
consumer has submitted a written application that meets certain 
requirements. Specifically, the application must include either: (1) 
The signature of a cosigner who has attained the age of 21, who has the 
means to repay debts incurred by the underage consumer in connection 
with the account, and who assumes joint liability for such debts; or 
(2) information indicating that the underage consumer has the ability 
to make the required payments for the account.

C. Marketing to Students

    Prohibited inducements. The Credit Card Act limits a creditor's 
ability to offer a student at an institution of higher education any 
tangible item to induce the student to apply for or open an open-end 
consumer credit plan offered by the creditor. Specifically, the Credit 
Card Act prohibits such offers: (1) On the campus of an institution of 
higher education; (2) near the campus of an institution of higher 
education; or (3) at an event sponsored by or related to an institution 
of higher education.
    The proposed commentary would provide guidance to assist creditors 
in complying with the rule. For example, the proposed commentary would 
clarify that ``tangible item'' means a physical item (such as a gift 
card, t-shirt, or magazine subscription) and does not include non-
physical items (such as discounts, rewards points, or promotional 
credit terms). The proposed commentary would also clarify that a 
location that is within 1,000 feet of the border of the campus of an 
institution of higher education (as defined by the institution) is 
considered near the campus of that institution. Finally, consistent 
with guidance recently adopted by the Board with respect to certain 
private education loans, the proposed commentary would state that an 
event is related to an institution of higher education if the marketing 
of such event uses words, pictures, or symbols identified with the 
institution in a way that implies that the institution endorses or 
otherwise sponsors the event.
    Disclosure and reporting requirements. The proposed rule would also 
implement the provisions of the Credit Card Act requiring institutions 
of higher education to publicly disclose agreements with credit card 
issuers regarding the marketing of credit cards. The proposal would 
state that an institution may comply with this requirement by, for 
example, posting the agreement on its Web site or by making the 
agreement available upon request.

D. Fees or Charges for Transactions That Exceed the Credit Limit

    Consumer consent requirement. Consistent with the Credit Card Act, 
the proposed rule would require that a creditor obtain a consumer's 
express consent (or opt-in) before imposing any fees on a consumer's 
credit card account for making an extension of credit that exceeds the 
account's credit limit. Prior to obtaining this consent, the creditor 
must disclose, among other things, the dollar amount of any fees or 
charges that will be assessed for an over-the-limit transaction as well 
as any increased rate that may apply if the consumer exceeds the credit 
limit. In addition, if the consumer consents, the creditor is also 
required to provide a notice of the consumer's right to revoke that 
consent on any periodic statement that reflects the imposition of an 
over-the-limit fee or charge.
    The proposed rule would apply these requirements to all consumers 
(including existing account holders) if the creditor imposes a fee or 
charge for paying an over-the-limit transaction. Thus, after the 
February 22, 2010 effective date, creditors would be prohibited from 
assessing any over-the-limit fees or charges on an account until the 
consumer consents to the payment of transactions that exceed the credit 
limit.
    Prohibited practices. Even if the consumer has affirmatively 
consented to the creditor's payment of over-the-limit transactions, the 
Credit Card Act prohibits certain practices in connection with the 
assessment of over-the-limit fees or charges. Consistent with these 
statutory prohibitions, the proposed rule would prohibit a creditor 
from imposing more than one over-the-limit fee or charge per billing 
cycle. In addition, a creditor could not impose an over-the-limit fee 
or charge on the account for the same over-the-limit transaction in 
more than three billing cycles.
    The Credit Card Act also directs the Board to prescribe regulations 
that prevent unfair or deceptive acts or practices in connection with 
the manipulation of credit limits designed to increase over-the-limit 
fees or other penalty fees. Pursuant to this authority, the proposed 
rule would prohibit a creditor from assessing an over-the-limit fee or 
charge that is caused by the creditor's failure to promptly replenish 
the consumer's available credit. The proposed rule would also prohibit 
creditors from conditioning the amount of available credit on the 
consumer's consent to the payment of over-the-limit transactions. 
Finally, the proposed rule would prohibit the imposition of any over-
the-limit fees or charges if the credit limit is exceeded solely 
because of the creditor's assessment of fees or charges (including 
accrued interest charges) on the consumer's account.

E. Timely Settlement of Estates

    The Credit Card Act directs the Board to prescribe regulations 
requiring creditors to establish procedures ensuring that any 
administrator of an estate can resolve the outstanding credit card 
balance of a deceased accountholder in a timely manner. The proposed 
rule would impose two

[[Page 54128]]

specific requirements designed to enable administrators to determine 
the amount of and pay a deceased consumer's balance in a timely manner. 
First, upon request by the administrator, the creditor would be 
required to disclose the amount of the balance in a timely manner. 
Second, once an administrator has made such a request, the creditor 
would be required to cease the imposition of fees and charges on the 
account (including the accrual of interest) so that the amount of the 
balance does not increase while the administrator is arranging for 
payment.

F. On-line Disclosure of Credit Card Agreements

    The Credit Card Act requires creditors to post credit card 
agreements on their Web sites and to submit those agreements to the 
Board for posting on its Web site. The Credit Card Act further provides 
that the Board may establish exceptions to these requirements in any 
case where the administrative burden outweighs the benefit of increased 
transparency, such as where a credit card plan has a de minimis number 
of accountholders.
    The proposed rule would require a creditor to post on its Web site 
or otherwise make available its credit card agreements with its current 
cardholders. However, the proposed rule would establish two limitations 
with respect to the submission of agreements to the Board. First, the 
proposed rule would establish a de minimis exception for creditors with 
fewer than 10,000 open credit card accounts. Because the overwhelming 
majority of credit card accounts are held by creditors that have more 
than 10,000 open accounts, the information provided through the Board's 
Web site would still reflect virtually all of the terms available to 
consumers.
    Second, creditors would not be required to submit agreements that 
are not currently offered to the public. The Board believes that the 
primary purpose of the information provided through the Board's Web 
site is to assist consumers in comparing credit card agreements offered 
by different issuers when shopping for a new credit card. Including 
agreements that are no longer offered to the public would not 
facilitate comparison shopping by consumers. In addition, including 
such agreements could create confusion regarding which terms are 
currently available.

G. Additional Provisions

    The proposed rule also implements the following provisions of the 
Credit Card Act, all of which go into effect on February 22, 2010.
    Limitations on fees. The Board's January 2009 FTC Act Rule 
prohibited banks from charging to a credit card account during the 
first year after account opening certain account-opening and other fees 
that, in total, constituted the majority of the initial credit limit. 
The Credit Card Act contains a similar provision, except that it 
applies to all fees (other than fees for late payments, returned 
payments, and exceeding the credit limit) and limits the total fees to 
25% of the initial credit limit.
    Payment allocation. When different rates apply to different 
balances on a credit card account, the Board's January 2009 FTC Act 
Rule required banks to allocate payments in excess of the minimum first 
to the balance with the highest rate or pro rata among the balances. 
The Credit Card Act contains a similar provision, except that excess 
payments must always be allocated first to the balance with the highest 
rate.
    Double-cycle billing. The Board's January 2009 FTC Act Rule 
prohibited banks from imposing finance charges on balances for days in 
previous billing cycles as a result of the loss of a grace period (a 
practice sometimes referred to as ``double-cycle billing''). The Credit 
Card Act contains a similar prohibition. In addition, when a consumer 
pays some but not all of a balance prior to expiration of a grace 
period, the Credit Card Act prohibits the creditor from imposing 
finance charges on the portion of the balance that has been repaid.
    Fees for making payment. The Credit Card Act prohibits creditors 
from charging a fee for making a payment, except for payments involving 
an expedited service by a service representative of the creditor.
    Minimum payments. The Board's January 2009 Regulation Z Rule 
implemented provisions of the Bankruptcy Abuse Prevention and Consumer 
Protection Act of 2005 requiring creditors to provide a toll-free 
telephone number where consumers could receive an estimate of the time 
to repay their account balances if they made only the required minimum 
payment each month. The Credit Card Act substantially revised the 
statutory requirements for these disclosures. In particular, the Credit 
Card Act requires the following new disclosures on the periodic 
statement: (1) The amount of time and the total cost (interest and 
principal) involved in paying the balance in full making only minimum 
payments; and (2) the monthly payment amount required to pay off the 
balance in 36 months and the total cost (interest and principal) of 
repaying the balance in 36 months.

III. Statutory Authority

    Section 2 of the Credit Card Act states that the Board ``may issue 
such rules and publish such model forms as it considers necessary to 
carry out this Act and the amendments made by this Act.'' This proposed 
rule implements several sections of the Credit Card Act, which amend 
TILA. TILA mandates that the Board prescribe regulations to carry out 
its purposes and specifically authorizes the Board, among other things, 
to do the following:
     Issue regulations that contain such classifications, 
differentiations, or other provisions, or that provide for such 
adjustments and exceptions for any class of transactions, that in the 
Board's judgment are necessary or proper to effectuate the purposes of 
TILA, facilitate compliance with the act, or prevent circumvention or 
evasion. 15 U.S.C. 1604(a).
     Exempt from all or part of TILA any class of transactions 
if the Board determines that TILA coverage does not provide a 
meaningful benefit to consumers in the form of useful information or 
protection. The Board must consider factors identified in the act and 
publish its rationale at the time it proposes an exemption for comment. 
15 U.S.C. 1604(f).
     Add or modify information required to be disclosed with 
credit and charge card applications or solicitations if the Board 
determines the action is necessary to carry out the purposes of, or 
prevent evasions of, the application and solicitation disclosure rules. 
15 U.S.C. 1637(c)(5).
     Require disclosures in advertisements of open-end plans. 
15 U.S.C. 1663.
    For the reasons discussed in this notice, the Board is using its 
specific authority under TILA and the Credit Card Act, in concurrence 
with other TILA provisions, to effectuate the purposes of TILA, to 
prevent the circumvention or evasion of TILA, and to facilitate 
compliance with the act.

IV. Applicability of Proposed Provisions

    While several provisions under the Credit Card Act apply to all 
open-end credit, others apply only to certain types of open-end credit, 
such as credit card accounts under open-end consumer credit plans. As a 
result, the Board understands that some additional clarification may be 
helpful as to which provisions of the Credit Card Act as proposed to be 
implemented in Regulation Z are applicable to which types of open-end 
credit products. In order to clarify the scope of the

[[Page 54129]]

proposed revisions to Regulation Z, the Board is providing the below 
table, which summarizes the applicability of each of the major 
revisions to Regulation Z.\4\
---------------------------------------------------------------------------

    \4\ This table summarizes the applicability only of those new 
paragraphs or provisions added to Regulation Z in order to implement 
the Credit Card Act, as well as the applicability of proposed 
provisions addressing deferred interest or similar offers. The Board 
notes that it is not proposing to change the applicability of 
provisions of Regulation Z amended by the January 2009 Regulation Z 
Rule or May 2009 Regulation Z Proposed Clarifications.

----------------------------------------------------------------------------------------------------------------
                              Provision                                              Applicability
----------------------------------------------------------------------------------------------------------------
Sec.   226.5(a)(2)(iii).............................................  All open-end (not home-secured) consumer
                                                                       credit plans.
Sec.   226.5(b)(2)(ii)..............................................  All open-end consumer credit plans.
Sec.   226.7(b)(11).................................................  Credit card accounts under an open-end
                                                                       (not home-secured) consumer credit plan.
Sec.   226.7(b)(12).................................................  Credit card accounts under an open-end
                                                                       (not home-secured) consumer credit plan.
Sec.   226.7(b)(14).................................................  All open-end (not home-secured) consumer
                                                                       credit plans.
Sec.   226.9(c)(2)..................................................  All open-end (not home-secured) consumer
                                                                       credit plans.
Sec.   226.9(e).....................................................  Credit or charge card accounts subject to
                                                                       Sec.   226.5a.
Sec.   226.9(g).....................................................  All open-end (not home-secured) consumer
                                                                       credit plans.
Sec.   226.9(h).....................................................  Credit card accounts under an open-end
                                                                       (not home-secured) consumer credit plan.
Sec.   226.10(b)(2)(ii).............................................  All open-end consumer credit plans.
Sec.   226.10(b)(3).................................................  Credit card accounts under an open-end
                                                                       (not home-secured) consumer credit plan.
Sec.   226.10(d)....................................................  All open-end consumer credit plans.
Sec.   226.10(e)....................................................  Credit card accounts under an open-end
                                                                       (not home-secured) consumer credit plan.
Sec.   226.10(f)....................................................  Credit card accounts under an open-end
                                                                       (not home-secured) consumer credit plan.
Sec.   226.11(c)....................................................  Credit card accounts under an open-end
                                                                       (not home-secured) consumer credit plan.
Sec.   226.16(f)....................................................  All open-end consumer credit plans.
Sec.   226.16(h)....................................................  All open-end (not home-secured) consumer
                                                                       credit plans.
Sec.   226.51.......................................................  Credit card accounts under an open-end
                                                                       (not home-secured) consumer credit plan.
Sec.   226.52.......................................................  Credit card accounts under an open-end
                                                                       (not home-secured) consumer credit plan.
Sec.   226.53.......................................................  Credit card accounts under an open-end
                                                                       (not home-secured) consumer credit plan.
Sec.   226.54.......................................................  Credit card accounts under an open-end
                                                                       (not home-secured) consumer credit plan.
Sec.   226.55.......................................................  Credit card accounts under an open-end
                                                                       (not home-secured) consumer credit plan.
Sec.   226.56.......................................................  Credit card accounts under an open-end
                                                                       (not home-secured) consumer credit plan.
Sec.   226.57.......................................................  Credit card accounts under an open-end
                                                                       (not home-secured) consumer credit plan,
                                                                       except that Sec.   226.57(c) applies to
                                                                       all open-end consumer credit plans.
Sec.   226.58.......................................................  Credit card accounts under an open-end
                                                                       (not home-secured) consumer credit plan.
----------------------------------------------------------------------------------------------------------------

V. Section-by-Section Analysis

Section 226.2 Definitions and Rules of Construction

2(a) Definitions
2(a)(15) Credit Card
    In the January 2009 Regulation Z Rule, the Board revised Sec.  
226.2(a)(15) to read as follows: ``Credit card means any card, plate, 
or other single credit device that may be used from time to time to 
obtain credit. Charge card means a credit card on an account for which 
no periodic rate is used to compute a finance charge.'' 74 FR 5257. In 
order to clarify the application of certain provisions of the Credit 
Card Act that apply to ``credit card account[s] under an open end 
consumer credit plan,'' the Board proposes to further revise Sec.  
226.2(a)(15) by adding a definition of ``credit card account under an 
open-end (not home-secured) consumer credit plan.'' Specifically, 
proposed Sec.  226.2(a)(15)(ii) would define this term to mean any 
credit account accessed by a credit card except a credit card that 
accesses a home-equity plan subject to the requirements of Sec.  226.5b 
or an overdraft line of credit accessed by a debit card. The 
definitions of ``credit card'' and ``charge card'' in the January 2009 
Regulation Z Rule would be moved to proposed Sec.  226.2(a)(15)(i) and 
(iii), respectively.
    The exclusion of credit cards that access a home-equity plan 
subject to Sec.  226.5b is consistent with the approach adopted by the 
Board in the July 2009 Regulation Z Interim Final Rule. See 74 FR 
36083. Specifically, the Board used its authority under TILA Section 
105(a) and Sec.  2 of the Credit Card Act to interpret the term 
``credit card account under an open-end consumer credit plan'' in new 
TILA Section 127(i) to exclude home-equity lines of credit subject to 
Sec.  226.5b, even if those lines could be accessed by a credit card. 
Instead, the Board applied the disclosure requirements in current Sec.  
226.9(c)(2)(i) and (g)(1) to ``credit card accounts under an open-end 
(not home-secured) consumer credit plan.'' See 74 FR 36094-36095. For 
consistency with the interim final rule, the Board would generally use 
its authority under TILA Section 105(a) and Sec.  2 of the Credit Card 
Act to apply the same interpretation to other provisions of the Credit 
Card Act that apply to a ``credit card account under an open end 
consumer credit plan.'' See, e.g., revised TILA Sec.  127(j), (k), (l), 
(n); revised TILA Sec.  171; new TILA Sec. Sec.  140A, 148, 149, 
172.\5\ This interpretation is also consistent with the Board's 
historical treatment of HELOC accounts accessible by a credit card 
under TILA; for example, the credit and charge card application and 
solicitation disclosure requirements under Sec.  226.5a expressly do 
not apply to home-equity plans accessible by a credit card that are 
subject to Sec.  226.5b. See current Sec.  226.5a(a)(3); revised Sec.  
226.5a(a)(5)(i), 74 FR 5403. The Board has issued the August 2009 
Regulation Z HELOC Proposal to address changes to Regulation Z that it 
believes are necessary and appropriate for HELOCs and will consider any 
appropriate revisions to the requirements for HELOCs in connection with 
that review.
---------------------------------------------------------------------------

    \5\ In certain cases, the Board has applied a statutory 
provision that refers to ``credit card accounts under an open end 
consumer credit plan'' to a wider range of products. Specifically, 
see the discussion below regarding the implementation of new TILA 
Section 127(i) in proposed Sec.  226.9(c)(2), the implementation of 
new TILA Section 127(m) in proposed Sec. Sec.  226.5(a)(2)(iii) and 
226.16(f), and the implementation of new TILA Section 127(o) in 
proposed Sec.  226.10(d).
---------------------------------------------------------------------------

    The Board also proposes to interpret the term ``credit card account 
under an open end consumer credit plan'' to exclude a debit card that 
accesses an overdraft line of credit. Although such cards are ``credit 
cards'' under current

[[Page 54130]]

Sec.  226.2(a)(15), the Board has generally excluded them from the 
provisions of Regulation Z that specifically apply to credit cards. For 
example, as with credit cards that access HELOCs, the provisions in 
Sec.  226.5a regarding credit and charge card applications and 
solicitations do not apply to overdraft lines of credit tied to asset 
accounts accessed by debit cards. See current Sec.  226.5a(a)(3); 
revised Sec.  226.5a(a)(5)(ii), 74 FR 5403.
    Instead, Regulation E (Electronic Fund Transfers) generally governs 
debit cards that access overdraft lines of credit. See 12 CFR part 205. 
For example, Regulation E generally governs the issuance of debit cards 
that access an overdraft line of credit, although Regulation Z's 
issuance provisions apply to the addition of a credit feature (such as 
an overdraft line) to a debit card. See 12 CFR 205.12(a)(1)(ii) and 
(a)(2)(i). Similarly, when a transaction that debits a checking or 
other asset account also draws on an overdraft line of credit, 
Regulation Z treats the extension of credit as incident to an 
electronic fund transfer and the error resolution provisions in 
Regulation E generally govern the transaction. See 12 CFR 205.12 
comment 12(a)-1.i.\6\
---------------------------------------------------------------------------

    \6\ However, the error resolution provisions in Sec.  226.13(d) 
and (g) do apply to such transactions. See 12 CFR 205.12 comment 
12(a)-1.ii.D; see also current Sec. Sec.  226.12(g) and 13(i); 
current comments 12(c)(1)-1 and 13(i)-3; new comment 12(c)-3, 74 FR 
5488; revised comment 12(c)(1)-1.iv., 74 FR 5488. In addition, if 
the transaction solely involves an extension of credit and does not 
include a debit to a checking or other asset account, the liability 
limitations and error resolution requirements in Regulation Z apply. 
See 12 CFR 205.12(a)-1.i.
---------------------------------------------------------------------------

    Consistent with this approach, the Board believes that debit cards 
that access overdraft lines of credit should not be subject to the 
regulations implementing the provisions of the Credit Card Act that 
apply to ``credit card accounts under an open end consumer credit 
plan.'' As discussed in the January 2009 Regulation Z Rule, the Board 
understands that overdraft lines of credit are not in wide use.\7\ 
Furthermore, as a general matter, the Board understands that creditors 
do not generally engage in the practices addressed in the relevant 
provisions of the Credit Card Act with respect to overdraft lines of 
credit. For example, as discussed in the January 2009 Regulation Z 
Rule, overdraft lines of credit are not typically promoted as--or used 
for--long-term extensions of credit. See 74 FR 5331. Therefore, because 
proposed Sec.  226.9(c)(2) would require a creditor to provide 45 days' 
notice before increasing an annual percentage rate for an overdraft 
line of credit, a creditor is unlikely to engage in the practices 
prohibited by revised TILA Section 171 with respect to the application 
of increased rates to existing balances. Similarly, because creditors 
generally do not apply different rates to different balances or provide 
grace periods with respect to overdraft lines of credit, the provisions 
in proposed Sec. Sec.  226.53 and 226.54 would not provide any 
meaningful protection. Accordingly, the Board proposes to use its 
authority under TILA Section 105(a) and Sec.  2 of the Credit Card Act 
to create an exception for debit cards that access an overdraft line of 
credit. The Board notes this proposed definition is not intended to 
alter the scope or coverage of provisions of Regulation Z that refer 
generally to credit cards or open-end credit rather than the new 
defined term ``credit card account under an open-end (not home-secured 
consumer credit plan.''
---------------------------------------------------------------------------

    \7\ The 2007 Survey of Consumer Finances data indicates that few 
families (1.7 percent) had a balance on lines of credit other than a 
home-equity line or credit card at the time of the interview. In 
comparison, 73 percent of families had a credit card, and 60.3 
percent of these families had a credit card balance at the time of 
the interview. See Brian Bucks, et al., Changes in U.S. Family 
Finances from 2004 to 2007: Evidence from the Survey of Consumer 
Finances, Federal Reserve Bulletin (February 2009).
---------------------------------------------------------------------------

Section 226.5 General Disclosure Requirements

5(a) Form of Disclosures
5(a)(2) Terminology
    Section 103 of the Credit Card Act creates a new TILA Section 
127(m) (15 U.S.C. 1637(m)), which states that with respect to the terms 
of any credit card account under an open-end consumer credit plan, the 
term ``fixed,'' when appearing in conjunction with a reference to the 
APR or interest rate applicable to such account, may only be used to 
refer to an APR or interest rate that will not change or vary for any 
reason over the period specified clearly and conspicuously in the terms 
of the account. 15 U.S.C. 1637(m). In the January 2009 Regulation Z 
Rule, the Board had adopted Sec. Sec.  226.5(a)(2)(iii) and 226.16(f) 
to restrict the use of the term ``fixed,'' or any similar term, to 
describe a rate disclosed in certain required disclosures and in 
advertisements only to instances when that rate would not increase 
until the expiration of a specified time period. If no time period is 
specified, then the term ``fixed,'' or any similar term, may not be 
used to describe the rate unless the rate will not increase while the 
plan is open.
    The Board believes that Sec. Sec.  226.5(a)(2)(iii) and 226.16(f), 
as adopted in the January 2009 Regulation Z Rule, would be consistent 
with new TILA Section 127(m). Therefore, the Board is not proposing any 
changes to these rules.
    While TILA Section 127(m) applies only to credit card accounts 
under an open-end consumer credit plan, Sec.  226.5(a)(2)(iii) applies 
to all open-end (not home-secured) plans and Sec.  226.16(f) applies to 
all open-end plans. The Board continues to believe this scope is 
appropriate, so consumers of non-credit card products that are open-end 
(not home-secured) plans will still benefit from the protections of 
this requirement. The Board accordingly proposes to use its TILA 
Section 105(a) authority to apply the requirements of Sec.  
226.5(a)(2)(iii) to all open-end (not home-secured) plans and Sec.  
226.16(f) to all open-end plans. Furthermore, although TILA Section 
127(m) only references the term ``fixed,'' Sec. Sec.  226.5(a)(2)(iii) 
and 226.16(f) restrict use of the word ``fixed'' as well as other 
similar terms. The Board believes this interpretation is necessary to 
prevent creditors from circumventing the rule by using different 
terminology that would essentially have the same meaning as ``fixed'' 
in the minds of consumers. As a result, the Board proposes to use its 
authority under TILA Section 105(a) to apply the provision to other 
terms similar to the term ``fixed.''
    Also, TILA Section 127(m) implies that a time period for which the 
rate is fixed must be specified in the account terms. While most 
creditors will likely state a term for the which the rate is fixed, the 
Board believes the rule should address instances when a rate is 
described as ``fixed'' but no time period is provided. The Board, 
therefore, proposes to use its authority under TILA Section 105(a) to 
provide that if a creditor describes a rate as ``fixed,'' but does not 
disclose a time period for which the rate will be fixed, the rate must 
not increase while the plan is open. Finally, TILA Section 127(m) 
states that a rate described as ``fixed'' may not change or vary for 
any reason. The Board believes, however, that it would be beneficial to 
consumers to permit a creditor to decrease a rate described as 
``fixed.'' Accordingly, the Board proposes to use its authority under 
TILA Section 105(a) to provide that a rate described as ``fixed'' may 
not be increased.
5(b) Time of Disclosures
5(b)(1) Account-Opening Disclosures
5(b)(1)(i) General Rule
    In certain circumstances, a creditor may substitute or replace one 
credit card account with another credit card account. For example, if 
an existing

[[Page 54131]]

cardholder requests additional features or benefits (such as rewards on 
purchases), the creditor may substitute or replace the existing credit 
card account with a new credit card account that provides those 
features or benefits. The Board also understands that creditors often 
charge higher annual percentage rates or annual fees to compensate for 
additional features and benefits. As discussed below, proposed Sec.  
226.55 and its commentary address the application of the general 
prohibitions on increasing annual percentage rates, fees, and charges 
during the first year after account opening and on applying increased 
rates to existing balances in these circumstances. See proposed Sec.  
226.55(d); proposed comments 55(b)(3)-3 and 55(d)-1 through -3.
    In order to clarify the application of the disclosure requirements 
in Sec. Sec.  226.6(b) and 226.9(c)(2) when one credit card account is 
substituted or replaced with another, the Board proposes to adopt 
comment 5(b)(1)(i)-6, which states that, when a card issuer substitutes 
or replaces an existing credit card account with another credit card 
account, the card issuer must either provide notice of the terms of the 
new account consistent with Sec.  226.6(b) or provide notice of the 
changes in the terms of the existing account consistent with Sec.  
226.9(c)(2). The Board understands that, when an existing cardholder 
requests new features or benefits, disclosure of the new terms pursuant 
to Sec.  226.6(b) may be preferable because the cardholder generally 
will not want to wait 45 days for the new terms to take effect (as 
would be the case if notice were provided pursuant to Sec.  
226.9(c)(2)). Thus, this comment is intended to provide card issuers 
with some flexibility regarding whether to treat the substitution or 
replacement as the opening of a new account (subject to Sec.  226.6(b)) 
or a change in the terms of an existing account (subject to Sec.  
226.9(c)(2)).
    However, the Board does not intend to permit card issuers to 
circumvent the disclosure requirements in Sec.  226.9(c)(2) by treating 
a change in terms as the opening of a new account. Accordingly, the 
comment would further state that whether a substitution or replacement 
results in the opening of a new account or a change in the terms of an 
existing account for purposes of the disclosure requirements in 
Sec. Sec.  226.6(b) and 226.9(c)(2) is determined in light of all the 
relevant facts and circumstances.
    The comment provides the following list of relevant facts and 
circumstances: (1) Whether the card issuer provides the consumer with a 
new credit card; (2) whether the card issuer provides the consumer with 
a new account number; (3) whether the account provides new features or 
benefits after the substitution or replacement (such as rewards on 
purchases); (4) whether the account can be used to conduct transactions 
at a greater or lesser number of merchants after the substitution or 
replacement; (5) whether the card issuer implemented the substitution 
or replacement on an individualized basis; and (6) whether the account 
becomes a different type of open-end plan after the substitution or 
replacement (such as when a charge card is replaced by a credit card). 
The comment states that, when most of these facts and circumstances are 
present, the substitution or replacement likely constitutes the opening 
of a new account for which Sec.  226.6(b) disclosures are appropriate. 
However, the comment also states that, when few of these facts and 
circumstances are present, the substitution or replacement likely 
constitutes a change in the terms of an existing account for which 
Sec.  226.9(c)(2) disclosures are appropriate.\8\
---------------------------------------------------------------------------

    \8\ The comment also provides cross-references to other 
provisions in Regulation Z and its commentary that address the 
substitution or replacement of credit card accounts.
---------------------------------------------------------------------------

    The Board solicits comment on whether additional facts and 
circumstances are relevant. The Board also solicits comment on 
alternative approaches to determining whether a substitution or 
replacement results in the opening of a new account or a change in the 
terms of an existing account for purposes of the disclosure 
requirements in Sec. Sec.  226.6(b) and 226.9(c)(2).
5(b)(2) Periodic Statements
    The Board is proposing to amend comment 5(b)(2)(ii)-2 in several 
respects in order to clarify the consequences of a failure to comply 
with the requirement in Sec.  226.5(b)(2)(ii) that creditors adopt 
reasonable procedures designed to ensure that periodic statements for 
open-end credit plans are mailed or delivered at least 21 days before 
the payment due date and the date on which any grace period expires. 
First, the title of the comment would be amended to cover both treating 
a payment as late for any purpose and collecting any finance or other 
charge. Second, because Sec.  226.5(b)(2)(ii) only prohibits the 
creditor from treating a payment as late for any purpose or collecting 
any finance or other charge as a result of a failure to comply with the 
general 21-day requirement, the comment would be amended to clarify 
that the prohibition in Sec.  226.5(b)(2)(ii) on treating a payment as 
late for any purpose or collecting finance or other charges applies 
only during the 21-day period following mailing or delivery of the 
periodic statement. Thus, if a creditor does not receive a payment 
within 21 days of mailing or delivery of the periodic statement, the 
prohibition does not apply and the creditor may, for example, impose a 
late payment fee.
    Third, for similar reasons, the amended comment would clarify that, 
when an account is not eligible for a grace period, a creditor may 
impose a finance charge due to a periodic interest rate without 
treating a payment as late or collecting finance or other charges as a 
result of a failure to comply with Sec.  226.5(b)(2)(ii).
    The Board is also proposing to amend the cross-reference in comment 
5(b)(2)(ii)-6 to reflect the restructuring of the commentary to Sec.  
226.7.

Section 226.5a Credit and Charge Card Applications and Solicitations

5a(b) Required Disclosures
5a(b)(1) Annual Percentage Rate
    To complement the proposed disclosure requirements for deferred 
interest or similar plans proposed in Sec. Sec.  226.7(b) and 226.16(h) 
in the May 2009 Regulation Z Proposed Clarifications, the Board also 
proposed a new comment 5a(b)(1)-9 to clarify that an issuer offering a 
deferred interest or similar plan may not disclose a rate as 0% due to 
the possibility that the consumer may not be obligated for interest 
regarding the deferred interest or similar transaction. 74 FR 20797. 
The Board is republishing proposed comment 5a(b)(1)-9 in this Federal 
Register notice.

Section 226.7 Periodic Statement

7(b) Rules Affecting Open-End (Not Home-Secured) Plans
7(b)(11) Due Date; Late Payment Costs
    In 2005, the Bankruptcy Act amended TILA to add Section 127(b)(12), 
which required creditors that charge a late payment fee to disclose on 
the periodic statement (1) the payment due date or, if the due date 
differs from when a late payment fee would be charged, the earliest 
date on which the late payment fee may be charged, and (2) the amount 
of the late payment fee. See 15 U.S.C. 1637(b)(12). In the January 2009 
Regulation Z Rule, the Board implemented this section of TILA for open-
end (not home-secured) credit plans. Specifically, the final rule added 
Sec.  226.7(b)(11) to require creditors offering open-end (not home-
secured) credit plans that charge a fee or impose

[[Page 54132]]

a penalty rate for paying late to disclose on the periodic statement: 
the payment due date, and the amount of any late payment fee and any 
penalty APR that could be triggered by a late payment. For ease of 
reference, this supplementary information will refer to the disclosure 
of any late payment fee and any penalty APR that could be triggered by 
a late payment as ``the late payment disclosures.''
    Section 226.7(b)(13), as adopted in the January 2009 Regulation Z 
Rule, sets forth formatting requirements for the due date and the late 
payment disclosures. Specifically, Sec.  226.7(b)(13) requires that the 
due date be disclosed on the front side of the first page of the 
periodic statement. Further, the amount of any late payment fee and any 
penalty APR that could be triggered by a late payment must be disclosed 
in close proximity to the due date.
    Section 202 of the Credit Card Act amends TILA Section 127(b)(12) 
to provide that for a ``credit card account under an open-end consumer 
credit plan,'' a creditor that charges a late payment fee must disclose 
in a conspicuous location on the periodic statement (1) the payment due 
date, or, if the due date differs from when a late payment fee would be 
charged, the earliest date on which the late payment fee may be 
charged, and (2) the amount of the late payment fee. In addition, if a 
late payment may result in an increase in the APR applicable to the 
credit card account, a creditor also must provide on the periodic 
statement a disclosure of this fact, along with the applicable penalty 
APR. The disclosure related to the penalty APR must be placed in close 
proximity to the due-date disclosure discussed above.
    In addition, Section 106 of the Credit Card Act adds new TILA 
Section 127(o), which requires that the payment due date for a credit 
card account under an open-end (not home-secured) consumer credit plan 
be the same day each month. 15 U.S.C. 1637(o).
    As discussed in more detail below, the Board proposes to retain the 
due date and the late payment disclosure provisions adopted in Sec.  
226.7(b)(11) as part of the January 2009 Regulation Z Rule, with 
several revisions. Format requirements relating to the due date and the 
late payment disclosure provisions are discussed in more detail in the 
section-by-section analysis to proposed Sec.  226.7(b)(13).
    Applicability of the due date and the late payment disclosure 
requirements. The due date and the late payment disclosures added to 
TILA Section 127(b)(12) by the Bankruptcy Act applied to all open-end 
credit plans. Consistent with TILA Section 127(b)(12), as added by the 
Bankruptcy Act, the due date and the late payment disclosures in Sec.  
226.7(b)(11) (as adopted in the January 2009 Regulation Z Rule) apply 
to all open-end (not home-secured) credit plans, including credit card 
accounts, overdraft lines of credit and other general purpose lines of 
credit that are not home secured.
    The Credit Card Act amended TILA Section 127(b)(12) to apply the 
due date and the late payment disclosures only to creditors offering a 
credit card account under an open-end consumer credit plan. Consistent 
with newly-revised TILA Section 127(b)(12), the Board proposes to amend 
Sec.  226.7(b)(11) to require the due date and the late payment 
disclosures only for a ``credit card account under an open-end (not 
home-secured) consumer credit plan,'' as that term is defined under 
proposed Sec.  226.2(a)(15)(ii). As discussed in more detail in the 
section-by-section analysis to proposed Sec.  226.2(a)(15)(ii), the 
term ``credit card account under an open-end (not home-secured) 
consumer credit plan'' means any account accessed by a credit card, 
except this term does not include HELOC accounts subject to Sec.  
226.5b that are accessed by a credit card device or overdraft lines of 
credit that are accessed by a debit card. Thus, based on the proposed 
definition of ``credit card account under an open-end (not home-
secured) consumer credit plan,'' the due date and the late payment 
disclosures would not apply to (1) open-end credit plans that are not 
credit card accounts such as general purpose lines of credit that are 
not accessed by a credit card; (2) HELOC accounts subject to Sec.  
226.5b even if they are accessed by a credit card device; and (3) 
overdraft lines of credit even if they are accessed by a debit card. In 
addition, as discussed in more detail below, under proposed Sec.  
226.7(b)(11)(ii), the Board also proposes to exempt charge card 
accounts from the late payment disclosure requirements.
    Charge card accounts. As discussed above, the late payment 
disclosures in TILA Section 127(b)(12), as amended by the Credit Card 
Act, apply to ``creditors'' offering credit card accounts under an 
open-end consumer credit plan. Issuers of ``charge cards'' (which are 
typically products where outstanding balances cannot be carried over 
from one billing period to the next and are payable when a periodic 
statement is received) are ``creditors'' for purposes of specifically 
enumerated TILA disclosure requirements. 15 U.S.C. 1602(f); Sec.  
226.2(a)(17). The late payment disclosure requirement in TILA Section 
127(b)(12), as amended by the Credit Card Act, is not among those 
specifically enumerated.
    For the reasons discussed in more detail below, a charge card 
issuer would be required to disclose the due date on the periodic 
statement, and this payment due date must be the same day each month. 
Nonetheless, under proposed Sec.  226.7(b)(11)(ii), a charge card 
issuer would not be required to disclose on the periodic statement the 
late payment disclosures, namely any late payment fee or penalty APR 
that could be triggered by a late payment. As discussed above, the late 
payment disclosure requirements are not specifically enumerated in TILA 
Section 103(f) to apply to charge card issuers. In addition, the Board 
notes that for some charge card issuers, payments are not considered 
``late'' for purposes of imposing a fee until a consumer fails to make 
payments in two consecutive billing cycles. It would be undesirable to 
encourage consumers who in January receive a statement with the balance 
due upon receipt, for example, to avoid paying the balance when due 
because a late payment fee may not be assessed until mid-February; if 
consumers routinely avoided paying a charge card balance by the due 
date, it could cause issuers to change their practice with respect to 
charge cards.
    Section 226.7(b)(11)(ii) makes clear the exemption is for periodic 
statements provided solely for charge card accounts; periodic 
statements provided for card accounts with a charge card feature and 
revolving feature must comply with the late payment disclosure 
provisions as to the revolving feature. The Board also proposes to 
retain comment app. G-9 (which was adopted in the January 2009 
Regulation Z Rule). Comment app. G-9 explains that creditors offering 
card accounts with a charge card feature and a revolving feature may 
revise disclosures, such as the late payment disclosures and the 
repayment disclosures discussed in the section-by-section analysis to 
proposed Sec.  226.7(b)(12) below, to make clear the feature to which 
the disclosures apply.
    Payment due date. As adopted in the January 2009 Regulation Z Rule, 
Sec.  226.7(b)(11) requires creditors offering open-end (not home-
secured) credit to disclose the due date for a payment if a late 
payment fee or penalty rate could be imposed under the credit 
agreement, as discussed in more detail as follows. As adopted in the 
January 2009 Regulation Z Rule, Sec.  226.7(b)(11) applies to all open-
end (not home-secured) credit plans, even those plans that are not 
accessed by a credit card device. The Board proposes generally to 
retain

[[Page 54133]]

the due date disclosure, except that this disclosure would be required 
only for a card issuer offering a ``credit card account under an open-
end (not home-secured) consumer credit plan,'' as that term is defined 
in proposed Sec.  226.2(a)(15)(ii).
    In addition, as discussed below, the Board is proposing several 
other revisions to Sec.  226.7(b)(11) in order to implement new TILA 
Section 127(o), which requires that the payment due date for a credit 
card account under an open-end (not home-secured) consumer credit plan 
be the same day each month. In addition to requiring that the due date 
disclosed be the same day each month, in order to implement new TILA 
Section 127(o), the Board proposes to require that the due date 
disclosure be provided regardless of whether a late payment fee or 
penalty rate could be imposed. Second, the Board proposes to amend 
Sec.  226.7(b)(11)(ii) to require that the due date be disclosed for 
charge card accounts, although charge card issuers would not be 
required to provide the late payment disclosures set forth in proposed 
Sec.  226.7(b)(11)(i)(B).
    1. Courtesy periods. In the January 2009 Regulation Z Rule, Sec.  
226.7(b)(11) interpreted the due date to be a date that is required by 
the legal obligation. Comment 7(b)(11)-1 clarified that creditors need 
not disclose informal ``courtesy periods'' not part of the legal 
obligation that creditors may observe for a short period after the 
stated due date before a late payment fee is imposed, to account for 
minor delays in payments such as mail delays. The Board proposes to 
retain comment 7(b)(11)-1 with technical revisions to refer to card 
issuers, rather than creditors, consistent with the proposal to limit 
the due date and late payment disclosures to a ``credit card account 
under an open-end (not home-secured) consumer credit plan,'' as that 
term is defined in proposed Sec.  226.2(a)(15)(ii).
    2. Assessment of late fees. Under TILA Section 127(b)(12), as 
revised by the Credit Card Act, a card issuer must disclose on periodic 
statements the payment due date or, if different, the earliest date on 
which the late payment fee may be charged. Some State laws require that 
a certain number of days must elapse following a due date before a late 
payment fee may be imposed. Under such a State law, the later date 
arguably would be required to be disclosed on periodic statements.
    In the January 2009 Regulation Z Rule, the Board required creditors 
to disclose the due date under the terms of the legal obligation, and 
not a later date, such as when creditors are restricted by State or 
other law from imposing a late payment fee unless a payment is late for 
a certain number of days following the due date. Specifically, comment 
7(b)(12)-2 (as adopted as part of the January 2009 Regulation Z Rule) 
notes that some State or other laws require that a certain number of 
days must elapse following a due date before a late payment fee may be 
imposed. For example, assume a payment is due on March 10 and State law 
provides that a late payment fee cannot be assessed before March 21. 
Comment 7(b)(11)-2 clarifies that creditors must disclose the due date 
under the terms of the legal obligation (March 10 in this example), and 
not a date different than the due date, such as when creditors are 
restricted by State or other law to delay from imposing a late payment 
fee unless a payment is late for a certain number of days following the 
due date (March 21 in this example). Consumers' rights under State law 
to avoid the imposition of late payment fees during a specified period 
following a due date are unaffected by the disclosure requirement. In 
this example, the creditor would disclose March 10 as the due date for 
purposes of Sec.  226.7(b)(11), even if under State law the creditor 
could not assess a late payment fee before March 21.
    The Board was concerned that disclosure of the later date would not 
provide a meaningful benefit to consumers in the form of useful 
information or protection and would result in consumer confusion. In 
the example above, highlighting March 20 as the last date to avoid a 
late payment fee may mislead consumers into thinking that a payment 
made any time on or before March 20 would have no adverse financial 
consequences. However, failure to make a payment when due is considered 
an act of default under most credit contracts, and can trigger higher 
costs due to loss of a grace period, interest accrual, and perhaps 
penalty APRs. The Board considered additional disclosures on the 
periodic statement that would more fully explain the consequences of 
paying after the due date and before the date triggering the late 
payment fee, but such an approach appeared cumbersome and overly 
complicated.
    For these reasons, notwithstanding TILA Section 127(b)(12), as 
revised by the Credit Card Act, the Board proposes to continue to 
require card issuers to disclose the due date under the terms of the 
legal obligation, and not a later date, such as when creditors are 
restricted by State or other law from imposing a late payment fee 
unless a payment is late for a certain number of days following the due 
date. The Board proposes this exception to the TILA requirement to 
disclose the later date pursuant to the Board's authority under TILA 
Section 105(a) to make adjustments that are necessary to effectuate the 
purposes of TILA. 15 U.S.C. 1604(a).
    The Board proposes to retain comment 7(b)(11)-2 with several 
revisions. First, the comment would be revised to refer to card 
issuers, rather than creditors, consistent with the proposal to limit 
the due date and late payment disclosures to a ``credit card account 
under an open-end (not home-secured) consumer credit plan,'' as that 
term is defined in proposed Sec.  226.2(a)(15)(ii). Second, the comment 
would be revised to address the situation where the terms of the 
account agreement (rather than State law) limit a card issuer from 
imposing a late payment fee unless a payment is late a certain number 
of days following a due date. The Board proposes to revise comment 
7(b)(11)-2 to provide that in this situation a card issuer must 
disclose the date the payment is due under the terms of the legal 
obligation, and not the later date when a late payment fee may be 
imposed under the contract.
    3. Same due date each month. The Credit Card Act created a new TILA 
Section 127(o), which states in part that the payment due date for a 
credit card account under an open end consumer credit plan shall be the 
same day each month. The Board is proposing to implement this 
requirement by revising Sec.  226.7(b)(11)(i). The text the Board is 
proposing to insert into amended Sec.  226.7(b)(11)(i) would generally 
track the statutory language in new TILA Section 127(o) and would state 
that for credit card accounts under open-end (not home-secured) 
consumer credit plans, the due date disclosed pursuant to Sec.  
226.7(b)(11)(i) must be the same day of the month for each billing 
cycle.
    The Board is proposing several new comments to clarify the 
requirement that the due date be the same day of the month for each 
billing cycle. Proposed comment 7(b)(11)(i)-6 would clarify that the 
same day of the month means the same numerical day of the month. The 
comment notes that one example of a compliant practice would be to have 
a due date that is the 25th of every month. In contrast, it would not 
be permissible for the payment due date to be the same relative date, 
but not numerical date, of each month, such as the third Tuesday of the 
month. The Board believes that the intent of new TILA Section 127(o) is 
to promote predictability and to enhance consumer awareness of due 
dates each month to make it easier to make timely payments. The Board 
believes that requiring the

[[Page 54134]]

due date to be the same numerical day each month effectuates the 
statute, and that permitting the due date to be the same relative day 
each month would not as effectively promote predictability for 
consumers.
    The Board notes that in practice the requirement that the due date 
be the same numerical date each month would preclude creditors from 
setting due dates that are the 29th, 30th, or 31st of the month. The 
Board is aware that some credit card issuers currently set due dates 
for a portion of their accounts on every day of the month, in order to 
distribute the burden associated with processing payments more evenly 
throughout the month. The Board solicits comment on any operational 
burden associated with processing additional payments received on the 
1st through 28th of the month in those months with more than 28 days.
    Proposed comment 7(b)(11)(i)-7 would clarify that a creditor may 
adjust a consumer's due date from time to time, for example in response 
to a consumer-initiated request, provided that the new due date will be 
the same numerical date each month on an ongoing basis. The proposed 
comment would cross-reference existing comment 2(a)(4)-3 for guidance 
on transitional billing cycles that might result when the consumer's 
due date is changed. The Board believes that it is appropriate to 
permit creditors to change the consumer's due date from time to time, 
for example, if the creditor wishes to honor a consumer request for a 
new due date that better coincides with the time of the month when the 
consumer is paid by his or her employer. The Board notes that while the 
proposed comment refers to consumer-initiated requests as one example 
of when a change in due date might occur, proposed Sec.  
226.7(b)(11)(i) and comment 7(b)(11)(i)-7 would not prohibit changes in 
the consumer's due date from time to time that are not consumer-
initiated, for example, if a creditor acquires a portfolio and changes 
the consumer's due date as it migrates acquired accounts onto its own 
systems.
    Regulation Z's definition of ``billing cycle'' in Sec.  226.2(a)(4) 
contemplates that the interval between the days or dates of regular 
periodic statements must be equal and no longer than a quarter of a 
year. Therefore, some creditors may have billing cycles that are two or 
three months in duration. The Board is proposing comment 7(b)(11)(i)-8 
to clarify that new Sec.  226.7(b)(11)(i) does not prohibit billing 
cycles that are two or three months, provided that the due date for 
each billing cycle is on the same numerical date of each month. The 
Board believes that it was not the intent of new TILA Section 127(o) to 
require that each billing cycle be exactly one month, so long as the 
due date is always the same day of the month for each billing cycle. 
For example, the comment notes that a creditor that establishes two-
month billing cycles could send a consumer periodic statements 
disclosing due dates of January 25, March 25, and May 25.
    Finally, the Board is proposing comment 7(b)(11)(i)-9 to clarify 
the relationship between Sec. Sec.  226.7(b)(11)(i) and 226.10(d). As 
discussed elsewhere in this supplementary information, proposed Sec.  
226.10(d) provides that if the payment due date is a day on which the 
creditor does not receive or accept payments by mail, the creditor is 
generally required to treat a payment received the next business day as 
timely. It is likely that, from time to time, a due date that is the 
same numerical date each month as required by Sec.  226.7(b)(11)(i) may 
fall on a date on which the creditor does not accept or receive mailed 
payments, such as a holiday or weekend. However, proposed comment 
7(b)(11)(i)-9 clarifies that in such circumstances the creditor must 
disclose the due date according to the legal obligation between the 
parties, not the date as of which the creditor is permitted to treat 
the payment as late. For example, assume that the consumer's due date 
is the 4th of every month and the creditor does not accept or receive 
payments by mail on Thursday, July 4. Pursuant to Sec.  226.10(d), the 
creditor may not treat a mailed payment received on the following 
business day, Friday, July 5, as late for any purpose. The creditor 
must nonetheless, however, disclose July 4 as the due date on the 
periodic statement and may not disclose a July 5 due date. This is 
consistent with the approach that the Board has taken with regard to 
payment due dates in comment 5(b)(2)(ii)-3 of the July 2009 Regulation 
Z Interim Final Rule, where the due date disclosed is required to 
reflect the legal obligation between the parties, not any courtesy 
period offered by the creditor or required by State or other law.
    Late payment fee and penalty APR. In the January 2009 Regulation Z 
Rule, the Board adopted Sec.  226.7(b)(11) to require creditors 
offering open-end (not home-secured) credit plans that charge a fee or 
impose a penalty rate for paying late to disclose on the periodic 
statement the amount of any late payment fee and any penalty APR that 
could be triggered by a late payment (in addition to the payment due 
date discussed above). Consistent with TILA Section 127(b)(12), as 
revised by the Credit Card Act, proposed Sec.  226.7(b)(11) would 
continue to require that a card issuer disclose any late payment fee 
and any penalty APR that may be imposed on the account as a result of a 
late payment, in addition to the payment due date discussed above.
    Fee or rate triggered by multiple events. In the January 2009 
Regulation Z Rule, the Board added comment 7(b)(11)-3 to provide 
guidance on complying with the late payment disclosure if a late fee or 
penalty APR is triggered after multiple events, such as two late 
payments in six months. Comment 7(b)(11)-3 provides that in such cases, 
the creditor may, but is not required to, disclose the late payment and 
penalty APR disclosure each month. The disclosures must be included on 
any periodic statement for which a late payment could trigger the late 
payment fee or penalty APR, such as after the consumer made one late 
payment in this example. The Board proposes to retain this comment with 
technical revisions to refer to card issuers, rather than creditors, 
consistent with the proposal to limit the late payment disclosures to a 
``credit card account under an open-end (not home-secured) consumer 
credit plan,'' as that term is defined in proposed Sec.  
226.2(a)(15)(ii).
    Range of fees and rates. In the January 2009 Regulation Z Rule, 
Sec.  226.7(b)(11)(i)(B) provides that if a range of late payment fees 
or penalty APRs could be imposed on the consumer's account, creditors 
may disclose the highest late payment fee and rate and at creditors' 
option, an indication (such as using the phrase ``up to'') that lower 
fees or rates may be imposed. Comment 7(b)(11)-4 was added to 
illustrate the requirement. The final rule also permits creditors to 
disclose a range of fees or rates. The Board proposes to retain Sec.  
226.7(b)(11)(i)(B) and comment 7(b)(11)-4 with technical revisions to 
refer to card issuers, rather than creditors, consistent with the 
proposal to limit the late payment disclosures to a ``credit card 
account under an open-end (not home-secured) consumer credit plan,'' as 
that term is defined in proposed Sec.  226.2(a)(15)(ii). This approach 
recognizes the space constraints on periodic statements and provides 
card issuers flexibility in disclosing possible late payment fees and 
penalty rates.
    Penalty APR in effect. In the January 2009 Regulation Z Rule, 
comment 7(b)(11)-5 was added to provide that if the highest penalty APR 
has previously been triggered on an account, the

[[Page 54135]]

creditor may, but is not required to, delete as part of the late 
payment disclosure the amount of the penalty APR and the warning that 
the rate may be imposed for an untimely payment, as not applicable. 
Alternatively, the creditor may, but is not required to, modify the 
language to indicate that the penalty APR has been increased due to 
previous late payments, if applicable. The Board proposes to retain 
this comment with technical revisions to refer to card issuers, rather 
than creditors, consistent with the proposal to limit the late payment 
disclosures to a ``credit card account under an open-end (not home-
secured) consumer credit plan,'' as that term is defined in proposed 
Sec.  226.2(a)(15)(ii).
7(b)(12) Repayment Disclosures
    The Bankruptcy Act added TILA Section 127(b)(11) to require 
creditors that extend open-end credit to provide a disclosure on the 
front of each periodic statement in a prominent location about the 
effects of making only minimum payments. 15 U.S.C. 1637(b)(11). This 
disclosure included: (1) a ``warning'' statement indicating that making 
only the minimum payment will increase the interest the consumer pays 
and the time it takes to repay the consumer's balance; (2) a 
hypothetical example of how long it would take to pay off a specified 
balance if only minimum payments are made; and (3) a toll-free 
telephone number that the consumer may call to obtain an estimate of 
the time it would take to repay his or her actual account balance 
(``generic repayment estimate''). In order to standardize the 
information provided to consumers through the toll-free telephone 
numbers, the Bankruptcy Act directed the Board to prepare a ``table'' 
illustrating the approximate number of months it would take to repay an 
outstanding balance if the consumer pays only the required minimum 
monthly payments and if no other advances are made. The Board was 
directed to create the table by assuming a significant number of 
different APRs, account balances, and minimum payment amounts; the 
Board was required to provide instructional guidance on how the 
information contained in the table should be used to respond to 
consumers' requests.
    Alternatively, the Bankruptcy Act provided that a creditor may use 
a toll-free telephone number to provide the actual number of months 
that it will take consumers to repay their outstanding balances 
(``actual repayment disclosure'') instead of providing an estimate 
based on the Board-created table. A creditor that does so would not 
need to include a hypothetical example on its periodic statements, but 
must disclose the warning statement and the toll-free telephone number 
on its periodic statements. 15 U.S.C. 1637(b)(11)(J)-(K).
    For ease of reference, this supplementary information will refer to 
the above disclosures in the Bankruptcy Act about the effects of making 
only the minimum payment as ``the minimum payment disclosures.''
    In the January 2009 Regulation Z Rule, the Board implemented this 
section of TILA. In that rulemaking, the Board limited the minimum 
payment disclosures required by the Bankruptcy Act to credit card 
accounts, pursuant to the Board's authority under TILA Section 105(a) 
to make adjustments that are necessary to effectuate the purposes of 
TILA. 15 U.S.C. 1604(a). In addition, the final rule in Sec.  
226.7(b)(12) provided that credit card issuers could choose one of 
three ways to comply with the minimum payment disclosure requirements 
set forth in the Bankruptcy Act: (1) Provide on the periodic statement 
a warning about making only minimum payments, a hypothetical example, 
and a toll-free telephone number where consumers may obtain generic 
repayment estimates; (2) provide on the periodic statement a warning 
about making only minimum payments, and a toll-free telephone number 
where consumers may obtain actual repayment disclosures; or (3) provide 
on the periodic statement the actual repayment disclosure. The Board 
issued guidance in Appendix M1 to part 226 for how to calculate the 
generic repayment estimates, and guidance in Appendix M2 to part 226 
for how to calculate the actual repayment disclosures. Appendix M3 to 
part 226 provided sample calculations for the generic repayment 
estimates and the actual repayment disclosures discussed in Appendices 
M1 and M2 to part 226.
    The Credit Card Act substantially revised Section 127(b)(11) of 
TILA. Specifically, Section 201 of the Credit Card Act amends TILA 
Section 127(b)(11) to provide that creditors that extend open-end 
credit must provide the following disclosures on each periodic 
statement: (1) A ``warning'' statement indicating that making only the 
minimum payment will increase the interest the consumer pays and the 
time it takes to repay the consumer's balance; (2) the number of months 
that it would take to repay the outstanding balance if the consumer 
pays only the required minimum monthly payments and if no further 
advances are made; (3) the total cost to the consumer, including 
interest and principal payments, of paying that balance in full, if the 
consumer pays only the required minimum monthly payments and if no 
further advances are made; (4) the monthly payment amount that would be 
required for the consumer to pay off the outstanding balance in 36 
months, if no further advances are made, and the total cost to the 
consumer, including interest and principal payments, of paying that 
balance in full if the consumer pays the balance over 36 months; and 
(5) a toll-free telephone number at which the consumer may receive 
information about credit counseling and debt management services. For 
ease of reference, this supplementary information will refer to the 
above disclosures in the Credit Card Act as ``the repayment 
disclosures.''
    The Credit Card Act provides that the repayment disclosures 
discussed above (except for the warning statement) must be disclosed in 
the form and manner which the Board prescribes by regulation and in a 
manner that avoids duplication; and be placed in a conspicuous and 
prominent location on the billing statement. By regulation, the Board 
must require that the disclosure of the repayment information (except 
for the warning statement) be in the form of a table that contains 
clear and concise headings for each item of information and provides a 
clear and concise form stating each item of information required to be 
disclosed under each such heading. In prescribing the table, the Board 
must require that all the information in the table, and not just a 
reference to the table, be placed on the billing statement and the 
items required to be included in the table must be listed in the order 
in which such items are set forth above. In prescribing the table, the 
statute states that the Board shall use terminology different from that 
used in the statute, if such terminology is more easily understood and 
conveys substantially the same meaning. With respect to the toll-free 
telephone number for providing information about credit counseling and 
debt management services, the Credit Card Act provides that the Board 
must issue guidelines by rule, in consultation with the Secretary of 
the Treasury, for the establishment and maintenance by creditors of a 
toll-free telephone number for purposes of providing information about 
a accessing credit counseling and debt management services. These 
guidelines must ensure that referrals provided by the toll-free 
telephone number include only those nonprofit budget and credit 
counseling agencies approved by a U.S. bankruptcy trustee pursuant to 
11 U.S.C. 111(a).
    As discussed in more detail below, the Board proposes to revise

[[Page 54136]]

Sec.  226.7(b)(12) to implement Section 201 of the Credit Card Act.
    Proposal to limit the repayment disclosure requirements to credit 
card accounts. Under the Credit Card Act, the repayment disclosure 
requirements apply to all open-end accounts (such as credit card 
accounts, HELOCs, and general purpose credit lines). As discussed 
above, in the January 2009 Regulation Z Rule, the Board limited the 
minimum payment disclosures required by the Bankruptcy Act to credit 
card accounts. For similar reasons, the Board proposes to limit the 
repayment disclosures in the Credit Card Act to credit card accounts 
under open-end (not home-secured) consumer credit plans, as that term 
is defined in proposed Sec.  226.2(a)(15)(ii).
    As discussed in more detail in the section-by-section analysis to 
proposed Sec.  226.2(a)(15)(ii), the term ``credit card account under 
an open-end (not home-secured) consumer credit plan'' means any account 
accessed by a credit card, except this term does not include HELOC 
accounts subject to Sec.  226.5b that are accessed by a credit card 
device or overdraft lines of credit that are accessed by a debit card. 
Thus, based on the proposed exemption to limit the repayment 
disclosures to credit card accounts under open-end (not home-secured) 
consumer credit plans, the following products would be exempt from the 
repayment disclosures in TILA Section 127(b)(11), as set forth in the 
Credit Card Act: (1) HELOC accounts subject to Sec.  226.5b even if 
they are accessed by a credit card device; (2) overdraft lines of 
credit even if they are accessed by a debit card; and (3) open-end 
credit plans that are not credit card accounts, such as general purpose 
lines of credit that are not accessed by a credit card.
    The Board proposes this rule pursuant to its exception and 
exemption authorities under TILA Section 105. Section 105(a) authorizes 
the Board to make exceptions to TILA to effectuate the statute's 
purposes, which include facilitating consumers' ability to compare 
credit terms and helping consumers avoid the uninformed use of credit. 
See 15 U.S.C. 1601(a), 1604(a). Section 105(f) authorizes the Board to 
exempt any class of transactions from coverage under any part of TILA 
if the Board determines that coverage under that part does not provide 
a meaningful benefit to consumers in the form of useful information or 
protection. See 15 U.S.C. 1604(f)(1). The Board must make this 
determination in light of specific factors. See 15 U.S.C. 1604(f)(2). 
These factors are (1) the amount of the loan and whether the disclosure 
provides a benefit to consumers who are parties to the transaction 
involving a loan of such amount; (2) the extent to which the 
requirement complicates, hinders, or makes more expensive the credit 
process; (3) the status of the borrower, including any related 
financial arrangements of the borrower, the financial sophistication of 
the borrower relative to the type of transaction, and the importance to 
the borrower of the credit, related supporting property, and coverage 
under TILA; (4) whether the loan is secured by the principal residence 
of the borrower; and (5) whether the exemption would undermine the goal 
of consumer protection.
    As discussed in more detail below, the Board has considered each of 
these factors carefully, and based on that review, believes that the 
proposed exemption is appropriate.
    1. HELOC accounts. In the August 2009 Regulation Z HELOC Proposal, 
the Board proposed that the repayment disclosures required by TILA 
Section 127(b)(11), as amended by the Credit Card Act, not apply to 
HELOC accounts, including HELOC accounts that can be accessed by a 
credit card device. See 74 FR 43428. The Board proposed this rule 
pursuant to its exception and exemption authorities under TILA Section 
105(a) and 105(f), as discussed above. In the supplementary information 
to the August 2009 Regulation Z HELOC Proposal, the Board stated its 
belief that the minimum payment disclosures in the Credit Card Act 
would be of limited benefit to consumers for HELOC accounts and are not 
necessary to effectuate the purposes of TILA. First, the Board 
understands that most HELOCs have a fixed repayment period. Under the 
August 2009 Regulation Z HELOC Proposal, in proposed Sec.  
226.5b(c)(9)(i), creditors offering HELOCs subject to Sec.  226.5b 
would be required to disclose the length of the plan, the length of the 
draw period and the length of any repayment period in the disclosures 
that must be given within three business days after application (but 
not later than account opening). In addition, this information also 
must be disclosed at account opening under proposed Sec.  
226.6(a)(2)(v)(A), as set forth in the August 2009 Regulation Z HELOC 
Proposal. Thus, for a HELOC account with a fixed repayment period, a 
consumer could learn from those disclosures the amount of time it would 
take to repay the HELOC account if the consumer only makes required 
minimum payments. The cost to creditors of providing this information a 
second time, including the costs to reprogram periodic statement 
systems, appears not to be justified by the limited benefit to 
consumers.
    In addition, in the supplementary information to the August 2009 
Regulation Z HELOC Proposal, the Board stated its belief that the 
disclosure about total cost to the consumer of paying the outstanding 
balance in full (if the consumer pays only the required minimum monthly 
payments and if no further advances are made) would not be useful to 
consumers for HELOC accounts because of the nature of consumers' use of 
HELOC accounts. The Board understands that HELOC consumers tend to use 
HELOC accounts for larger transactions that they can finance at a lower 
interest rate than is offered on unsecured credit cards, and intend to 
repay these transactions over the life of the HELOC account. By 
contrast, consumers tend to use unsecured credit cards to engage in a 
significant number of small dollar transactions per billing cycle, and 
may not intend to finance these transactions for many years. The Board 
also understands that HELOC consumers often will not have the ability 
to repay the balances on the HELOC account at the end of each billing 
cycle, or even within a few years. To illustrate, the Board's 2007 
Survey of Consumer Finances data indicates that the median balance on 
HELOCs (for families that had a balance at the time of the interview) 
was $24,000, while the median balance on credit cards (for families 
that had a balance at the time of the interview) was $3,000.\9\
---------------------------------------------------------------------------

    \9\ Brian Bucks, et al., Changes in U.S. Family Finances from 
2004 to 2007: Evidence from the Survey of Consumer Finances, Federal 
Reserve Bulletin (February 2009).
---------------------------------------------------------------------------

    As discussed in the supplementary information to the August 2009 
Regulation Z HELOC Proposal, the nature of consumers' use of HELOCs 
also underlies the Board's belief that periodic disclosure of the 
monthly payment amount required for the consumer to pay off the 
outstanding balance in 36 months, and the total cost to the consumer of 
paying that balance in full if the consumer pays the balance over 36 
months, would not provide useful information to consumers for HELOC 
accounts.
    For all these reasons, in the August 2009 Regulation Z HELOC 
Proposal, the Board proposed to exempt HELOC accounts (even when they 
are accessed by a credit card account) from the repayment disclosure 
requirements set forth in TILA Section 127(b)(11), as revised by the 
Credit Card Act.

[[Page 54137]]

    2. Overdraft lines of credit and other general purpose credit 
lines. The Board also proposes to exempt overdraft lines of credit 
(even if they are accessed by a debit card) and general purpose credit 
lines that are not accessed by a credit card from the repayment 
disclosure requirements set forth in TILA Section 127(b)(11), as 
revised by the Credit Card Act, for several reasons. 15 U.S.C. 
1637(b)(11). First, these lines of credit are not in wide use. The 2007 
Survey of Consumer Finances data indicates that few families--1.7 
percent--had a balance on lines of credit other than a home-equity line 
or credit card at the time of the interview. (By comparison, 73 percent 
of families had a credit card, and 60.3 percent of these families had a 
credit card balance at the time of the interview.) \10\ Second, these 
lines of credit typically are neither promoted, nor used, as long-term 
credit options of the kind for which the repayment disclosures are 
intended. Third, the Board is concerned that the operational costs of 
requiring creditors to comply with the repayment disclosure 
requirements for overdraft lines of credit and other general purpose 
lines of credit may cause some institutions to no longer provide these 
products as accommodations to consumers, to the detriment of consumers 
who currently use these products. For these reasons, the Board proposes 
to use its TILA Section 105(a) and 105(f) authority (as discussed 
above) to exempt overdraft lines of credit and other general purpose 
credit lines from the repayment disclosure requirements, because in 
this context the Board believes the repayment disclosures are not 
necessary to effectuate the purposes of TILA. 15 U.S.C. 1604(a) and 
(f).
---------------------------------------------------------------------------

    \10\ Brian Bucks, et al., Changes in U.S. Family Finances from 
2004 to 2007: Evidence from the Survey of Consumer Finances, Federal 
Reserve Bulletin (February 2009).
---------------------------------------------------------------------------

7(b)(12)(i) In General
    TILA Section 127(b)(11)(A), as amended by the Credit Card Act, 
requires that a creditor that extends open-end credit must provide the 
following disclosures on each periodic statement: (1) A ``warning'' 
statement indicating that making only the minimum payment will increase 
the interest the consumer pays and the time it takes to repay the 
consumer's balance; (2) the number of months that it would take to 
repay the outstanding balance if the consumer pays only the required 
minimum monthly payments and if no further advances are made; (3) the 
total cost to the consumer, including interest and principal payments, 
of paying that balance in full, if the consumer pays only the required 
minimum monthly payments and if no further advances are made; (4) the 
monthly payment amount that would be required for the consumer to pay 
off the outstanding balance in 36 months, if no further advances are 
made, and the total cost to the consumer, including interest and 
principal payments, of paying that balance in full if the consumer pays 
the balance over 36 months; and (5) a toll-free telephone number at 
which the consumer may receive information about accessing credit 
counseling and debt management services.
    In implementing these statutory disclosures, proposed Sec.  
226.7(b)(12)(i) sets forth the repayment disclosures that a credit card 
issuer generally must provide on the periodic statement. As discussed 
in more detail below, proposed Sec.  226.7(b)(12)(ii) sets forth the 
repayment disclosures that a credit card issuer must provide on the 
periodic statement when negative or no amortization occurs on the 
account.
    Warning statement. TILA Section 127(b)(11)(A), as amended by the 
Credit Card Act, requires that a creditor include the following 
statement on each periodic statement: ``Minimum Payment Warning: Making 
only the minimum payment will increase the amount of interest you pay 
and the time it takes to repay your balance,'' or a similar statement 
that is required by the Board pursuant to consumer testing. 15 U.S.C. 
1637(b)(11)(A). Under proposed Sec.  226.7(b)(12)(i)(A), if 
amortization occurs on the account, a credit card issuer generally 
would be required to disclose the following statement with a bold 
heading on each periodic statement: ``Minimum Payment Warning: If you 
make only the minimum payment each period, you will pay more in 
interest and it will take you longer to pay off your balance.'' The 
proposed warning statement contains several stylistic revisions to the 
statutory language, based on plain language principles, in an attempt 
to make the language of the warning more understandable to consumers. 
The Board tested the proposed warning statement as part of the consumer 
testing conducted by the Board on credit card disclosures in relation 
to the January 2009 Regulation Z Rule. Participants in that consumer 
testing reviewed periodic statement disclosures with the proposed 
warning statement, and they indicated they understood from this 
statement that paying only the minimum payment would increase both 
interest charges and the length of time it would take to pay off a 
balance.
    Minimum payment disclosures. TILA Section 127(b)(11)(B)(i) and 
(ii), as amended by the Credit Card Act, requires that a creditor 
provide on each periodic statement: (1) The number of months that it 
would take to pay the entire amount of the outstanding balance, if the 
consumer pays only the required minimum monthly payments and if no 
further advances are made; and (2) the total cost to the consumer, 
including interest and principal payments, of paying that balance in 
full, if the consumer pays only the required minimum monthly payments 
and if no further advances are made. 15 U.S.C. 1637(b)(11)(B)(i) and 
(ii). The Board proposes new Sec.  226.7(b)(12)(i)(B) and (C) to 
implement these statutory provisions.
    1. Minimum payment repayment estimate. Under proposed Sec.  
226.7(b)(12)(i)(B), if amortization occurs on the account, a credit 
card issuer generally would be required to disclose on each periodic 
statement the minimum payment repayment estimate, as described in 
proposed Appendix M1 to part 226. As described in more detail in the 
section-by-section analysis to proposed Appendix M1 to part 226, the 
minimum payment repayment estimate would be an estimate of the number 
of months that it would take to pay the entire amount of the 
outstanding balance shown on the periodic statement, if the consumer 
pays only the required minimum monthly payments and if no further 
advances are made. Under proposed Appendix M1 to part 226, a credit 
card issuer generally would calculate the minimum payment repayment 
estimate based on the minimum payment formula(s), the APRs and the 
outstanding balance currently applicable to a consumer's account. For 
other terms that may impact the calculation of the minimum payment 
repayment estimate, the Board proposes to allow issuers to make certain 
assumption about these terms.
    Proposed Sec.  226.7(b)(12)(i)(B) provides that if the minimum 
payment repayment estimate is less than 2 years, a credit card issuer 
must disclose the estimate in months. Otherwise, the estimate would be 
disclosed in years. If the estimate is 2 years or more, the estimate 
would be rounded to the nearest whole year, meaning that if the 
estimate contains a fractional year less than 0.5, the estimate would 
be rounded down to the nearest whole year. The estimate would be 
rounded up to the nearest whole year if the estimate contains a 
fractional year equal to or greater than 0.5. The Board proposes that 
the minimum payment repayment estimate be disclosed in years (if the

[[Page 54138]]

estimated payoff period is 2 years or more), pursuant to the Board's 
authority to make adjustments to TILA's requirements to effectuate the 
statute's purposes, which include facilitating consumers' ability to 
compare credit terms and helping consumers avoid the uninformed use of 
credit. See 15 U.S.C. 1601(a), 1604(a).
    The Board believes that disclosing the estimated minimum payment 
repayment period in years (if the estimated payoff period is 2 years or 
more) allows consumers to better comprehend longer repayment periods 
without having to convert the repayment periods themselves from months 
to years. In consumer testing conducted by the Board on credit card 
disclosures in relation to the January 2009 Regulation Z Rule, 
participants reviewed disclosures with estimated minimum payment 
repayment periods in years, and they indicated they understood the 
length of time it would take to repay the balance if only minimum 
payments were made.
    2. Minimum payment total cost estimate. Consistent with TILA 
Section 127(b)(11)(B)(ii), as revised by the Credit Card Act, proposed 
Sec.  226.7(b)(12)(i)(C) provides that if amortization occurs on the 
account, a credit card issuer generally must disclose on each periodic 
statement the minimum payment total cost estimate, as described in 
proposed Appendix M1 to part 226. As described in more detail in the 
section-by-section analysis to proposed Appendix M1 to part 226, the 
minimum payment total cost estimate would be an estimate of the total 
dollar amount of the interest and principal that the consumer would pay 
if he or she made minimum payments for the length of time calculated as 
the minimum payment repayment estimate, as described in proposed 
Appendix M1 to part 226. Under the proposal, the minimum payment total 
cost estimate must be rounded to the nearest whole dollar.
    3. Disclosure of assumptions used to calculate the minimum payment 
repayment estimate and the minimum payment total cost estimate. Under 
the proposal, a creditor would be required to provide on the periodic 
statement the following statements: (1) A statement that the minimum 
payment repayment estimate and the minimum payment total cost estimate 
are based on the current outstanding balance shown on the periodic 
statement; and (2) a statement that the minimum payment repayment 
estimate and the minimum payment total cost estimate are based on the 
assumption that only minimum payments are made and no other amounts are 
added to the balance. The Board believes that this information is 
needed to help consumers understand the minimum payment repayment 
estimate and the minimum payment total cost estimate. The Board does 
not propose to require issuers to disclose other assumptions used to 
calculate these estimates. The many assumptions that are necessary to 
calculate the minimum payment repayment estimate and the minimum 
payment total cost estimate are complex and unlikely to be meaningful 
or useful to most consumers.
    Repayment disclosures based on repayment in 36 months. TILA Section 
127(b)(11)(B)(iii), as revised by the Credit Card Act, requires that a 
creditor disclose on each periodic statement: (1) The monthly payment 
amount that would be required for the consumer to pay off the 
outstanding balance in 36 months, if no further advances are made; and 
(2) the total costs to the consumer, including interest and principal 
payments, of paying that balance in full if the consumer pays the 
balance over 36 months. 15 U.S.C. 1637(b)(11)(B)(iii).
    1. Estimated monthly payment for repayment in 36 months and total 
cost estimate for repayment in 36 months. In implementing TILA Section 
127(b)(11)(B)(iii), as revised by the Credit Card Act, proposed Sec.  
226.7(b)(12)(i)(F) provides that except when the minimum payment 
repayment estimate disclosed under proposed Sec.  226.7(b)(12)(i)(B) is 
3 years or less, a credit card issuer must disclose on each periodic 
statement the estimated monthly payment for repayment in 36 months and 
the total cost estimate for repayment in 36 months, as described in 
proposed Appendix M1 to part 226. As described in more detail in the 
section-by-section analysis to proposed Appendix M1 to part 226, the 
estimated monthly payment for repayment in 36 months would be an 
estimate of the monthly payment amount that would be required to pay 
off the outstanding balance shown on the statement within 36 months, 
assuming the consumer paid the same amount each month for 36 months. 
Also, as described in proposed Appendix M1 to part 226, the total cost 
estimate for repayment in 36 months would be the total dollar amount of 
the interest and principal that the consumer would pay if he or she 
made the estimated monthly payment each month for 36 months. Under the 
proposal, the estimated monthly payment for repayment in 36 months and 
the total cost estimate for repayment in 36 months must be rounded to 
the nearest whole dollar. Proposed Sec.  226.7(b)(12)(i)(F)(2) provides 
that a credit card issuer generally must disclose on each periodic 
statement a statement that the card issuer estimates that the consumer 
will repay the outstanding balance shown on the periodic statement in 3 
years if the consumer pays the estimated monthly payment each month for 
3 years. The Board believes that this information is needed to help 
consumers understand the estimated monthly payment for repayment in 36 
months. The Board does not propose to require issuers to disclose 
assumptions used to calculate this estimated monthly payment. The many 
assumptions that are necessary to calculate the estimated monthly 
payment for repayment in 36 months are complex and unlikely to be 
meaningful or useful to most consumers.
    2. Savings estimate for repayment in 36 months. In addition to the 
disclosure of the estimated monthly payment for repayment in 36 months 
and the total cost estimate for repayment in 36 months, proposed Sec.  
226.7(b)(12)(i)(F) also requires that a credit card issuer generally 
must disclose on each periodic statement the savings estimate for 
repayment in 36 months, as described in proposed Appendix M1 to part 
226. As described in proposed Appendix M1 to part 226, the savings 
estimate for repayment in 36 months would be calculated as the 
difference between the minimum payment total cost estimate and the 
total cost estimate for repayment in 36 months. Thus, the savings 
estimate for repayment in 36 months would represent an estimate of the 
amount of interest that a consumer would ``save'' if the consumer 
repaid the balance shown on the statement in 3 years by making the 
estimated monthly payment for repayment in 36 months each month, rather 
than making minimum payments each month. The Board proposes to require 
that credit card issuers disclose the savings estimate for repayment in 
36 months on the periodic statement pursuant to the Board's authority 
to make adjustments to TILA's requirements to effectuate the statute's 
purposes, which include facilitating consumers' ability to compare 
credit terms and helping consumers avoid the uninformed use of credit. 
See 15 U.S.C. 1601(a), 1604(a).
    The Board believes that the savings estimate for repayment in 36 
months will allow consumers more easily to understand the potential 
savings of paying the balance shown on the periodic statement in 3 
years rather than making minimum payments each month. This potential 
savings appears to be Congress' purpose in requiring that

[[Page 54139]]

the total cost for making minimum payments and the total cost for 
repayment in 36 months be disclosed on the periodic statement. The 
Board believes that including the savings estimate on the periodic 
statement allows consumers to comprehend better the potential savings 
without having to compute this amount themselves from the total cost 
estimates disclosed on the periodic statement. In consumer testing 
conducted by the Board on closed-end mortgage disclosures in relation 
to the August 2009 Regulation Z Closed-End Credit Proposal, some 
participants were shown two offers for mortgage loans with different 
APRs and different totals of payments. In that consumer testing, in 
comparing the two mortgage loans, participants tended not to calculate 
for themselves the difference between the total of payments for the two 
loans (i.e., the potential savings in choosing one loan over another), 
and use that amount to compare the two loans. Instead, participants 
tended to disregard the total of payments for both loans, because both 
totals were large numbers. Given the results of that consumer testing, 
the Board believes it is important to disclose the savings estimate on 
the periodic statement to focus consumers' attention explicitly on the 
potential savings of repaying the balance in 36 months.
    3. Minimum payment repayment estimate disclosed on the periodic 
statement is three years or less. Under proposed Sec.  
226.7(b)(12)(i)(F), a credit card issuer would not be required to 
provide the disclosures related to repayment in 36 months if the 
minimum payment repayment estimate disclosed under proposed Sec.  
226.7(b)(12)(i)(B) is 3 years or less. The Board proposes this 
exemption pursuant to the Board's authority exception and exemption 
authorities under TILA Section 105(a) and (f). The Board has considered 
the statutory factors carefully, and based on that review, believes 
that the proposed exemption is appropriate. The Board believes that the 
estimated monthly payment for repayment in 36 months, and the total 
cost estimate for repayment in 36 months would not be useful and may be 
misleading to consumers where based on the minimum payments that would 
be due on the account, a consumer would be required to repay the 
outstanding balance in three years or less. For example, assume that 
based on the minimum payments due on an account, a consumer would repay 
his or her outstanding balance in two years if the consumer only makes 
minimum payments and take no additional advances. The consumer under 
the account terms would not have the option to repay the outstanding 
balance in 36 months (i.e., 3 years). In this example, disclosure of 
the estimated monthly payment for repayment in 36 months and the total 
cost estimate for repayment in 36 months would be misleading, because 
under the account terms the consumer does not have the option to make 
the estimated monthly payment each month for 36 months. Requiring that 
this information be disclosed on the periodic statement where it might 
be misleading to consumers would undermine TILA's goal of consumer 
protection, and could make the credit process more expensive by 
requiring card issuers to incur costs to address customer confusion 
about these disclosures.
    Toll-free telephone number. TILA Section 127(b)(11)(B)(iii), as 
revised by the Credit Card Act, requires that a creditor disclose on 
each periodic statement a toll-free telephone number at which the 
consumer may receive information about credit counseling and debt 
management services. 15 U.S.C. 1637(b)(11)(B)(iii). Proposed Sec.  
226.7(b)(12)(i)(E) provides that a credit card issuer generally must 
disclose on each periodic statement a toll-free telephone number where 
the consumer may obtain information about credit counseling services 
consistent with the requirements set forth in proposed Sec.  
226.7(b)(12)(iv). As discussed in more detail below, proposed Sec.  
226.7(b)(12)(iv) sets forth the information that a credit card issuer 
must provide through the toll-free telephone number.
7(b)(12)(ii) Negative or No Amortization
    Negative or no amortization can occur if the required minimum 
payment is the same as or less than the total finance charges and other 
fees imposed during the billing cycle. Several major credit card 
issuers have established minimum payment requirements that prevent 
prolonged negative or no amortization. But some creditors may use a 
minimum payment formula that allows negative or no amortization (such 
as by requiring a payment of 2 percent of the outstanding balance, 
regardless of the finance charges or fees incurred).
    The Credit Card Act appears to require the following disclosures 
even when negative or no amortization occurs: (1) A ``warning'' 
statement indicating that making only the minimum payment will increase 
the interest the consumer pays and the time it takes to repay the 
consumer's balance; (2) the number of months that it would take to 
repay the outstanding balance if the consumer pays only the required 
minimum monthly payments and if no further advances are made; (3) the 
total cost to the consumer, including interest and principal payments, 
of paying that balance in full, if the consumer pays only the required 
minimum monthly payments and if no further advances are made; (4) the 
monthly payment amount that would be required for the consumer to pay 
off the outstanding balance in 36 months, if no further advances are 
made, and the total cost to the consumer, including interest and 
principal payments, of paying that balance in full if the consumer pays 
the balance over 36 months; and (5) a toll-free telephone number at 
which the consumer may receive information about credit counseling and 
debt management services.
    Nonetheless, for the reasons discussed in more detail below, the 
Board proposes to make adjustments to the above statutory requirements 
when negative or no amortization occurs, pursuant to the Board's 
authority under TILA Section 105(a) to make adjustments or exceptions 
to effectuate the purposes of TILA. 15 U.S.C. 1604(a). Specifically, 
when negative or no amortization occurs, the Board proposes in new 
Sec.  226.7(b)(12)(ii) to require a credit card issuer to disclose to 
the consumer on the periodic statement the following information: (1) 
The following statement: ``Minimum Payment Warning: Even if you make no 
more charges using this card, if you make only the minimum payment each 
month we estimate you will never pay off the balance shown on this 
statement because your payment will be less than the interest charged 
each month''; (2) the following statement: ``If you make more than the 
minimum payment each period, you will pay less in interest and pay off 
your balance sooner''; (3) the estimated monthly payment for repayment 
in 36 months; (4) the fact that the card issuer estimates that the 
consumer will repay the outstanding balance shown on the periodic 
statement in 3 years if the consumer pays the estimated monthly payment 
each month for 3 years; and (5) the toll-free telephone number for 
obtaining information about credit counseling services.
    When negative or no amortization occurs, the number of months to 
repay the balance shown on the statement if minimum payments are made 
and the total cost in interest and principal if the balance is repaid 
making only minimum payments cannot be calculated because the balance 
will never be repaid if only minimum payments are made. The Board 
proposes to replace these statutory disclosures with a warning

[[Page 54140]]

that the consumer will never repay the balance if making minimum 
payments each month.
    In addition, if negative or no amortization occurs, card issuers 
would be required to disclose the following statement: ``If you make 
more than the minimum payment each period, you will pay less in 
interest and pay off your balance sooner.'' This sentence is similar 
to, and accomplishes the goals of, the statutory warning statement, by 
informing consumers that they can pay less interest and pay off the 
balance sooner if the consumer pays more than the minimum payment each 
month.
    In addition, consistent with TILA Section 127(b)(11) as revised by 
the Credit Card Act, if negative or no amortization occurs, the Board 
proposes that the credit card issuer disclose to the consumer the 
estimated monthly payment for repayment in 36 months and a statement of 
the fact the card issuer estimates that the consumer will repay the 
outstanding balance shown on the periodic statement in 3 years if the 
consumer pays the estimated monthly payment each month for 3 years.
    If negative or no amortization occurs, a card issuer, however, 
would not disclose the total cost estimate for repayment in 36 months, 
as described in proposed Appendix M1 to part 226. The Board proposes an 
exception to TILA's requirement to disclose the total cost estimate for 
repayment in 36 months pursuant to the Board's exception and exemption 
authorities under TILA Section 105(f).
    The Board has considered each of the statutory factors carefully, 
and based on that review, believes that the proposed exemption is 
appropriate. As discussed above, when negative or no amortization 
occurs, a minimum payment cost estimate cannot be calculated because 
the balance shown on the statement will never be repaid if only minimum 
payments are made. Thus, under the proposal, a credit card issuer would 
not be required to disclose a minimum payment cost estimate as 
described in proposed Appendix M1 to part 226. Because the minimum 
payment cost estimate will not be disclosed when negative or no 
amortization occurs, the Board does not believe that the total cost 
estimate for repayment in 36 months would be useful to consumers. The 
Board believes that the total cost estimate for repayment in 36 months 
is useful when it can be compared to the minimum payment total cost 
estimate. Requiring that this information be disclosed on the periodic 
statement when it is not useful to consumers could distract consumers 
from more important information on the periodic statement, which could 
undermine TILA's goal of consumer protection.
7(b)(12)(iii) Format Requirements
    As discussed above, TILA Section 127(b)(11)(D), as revised by the 
Credit Card Act, provides that the repayment disclosures (except for 
the warning statement) must be disclosed in the form and manner which 
the Board prescribes by regulation and in a manner that avoids 
duplication; and must be placed in a conspicuous and prominent location 
on the billing statement. 15 U.S.C. 1637(b)(11)(D). By regulation, the 
Board must require that the disclosure of the repayment information 
(except for the warning statement) be in the form of a table that 
contains clear and concise headings for each item of information and 
provides a clear and concise form stating each item of information 
required to be disclosed under each such heading. In prescribing the 
table, the Board must require that all the information in the table, 
and not just a reference to the table, be placed on the billing 
statement. In addition, the items required to be included in the table 
must be listed in the following order: (1) The minimum payment 
repayment estimate; (2) the minimum payment total cost estimate; (3) 
the estimated monthly payment for repayment in 36 months; (4) the total 
cost estimate for repayment in 36 months; and (5) the toll-free 
telephone number. In prescribing the table, the Board must use 
terminology different from that used in the statute, if such 
terminology is more easily understood and conveys substantially the 
same meaning.
    Samples G-18(C)(1), G-18(C)(2) and G-18(C)(3). Proposed Sec.  
226.7(b)(12)(iii) provides that a credit card issuer must provide the 
repayment disclosures in a format substantially similar to proposed 
Samples G-18(C)(1), G-18(C)(2) and G-18(C)(3) in Appendix G to part 
226, as applicable.
    Proposed Sample G-18(C)(1) applies when amortization occurs and the 
minimum payment repayment estimate disclosed on the periodic statement 
is more than 3 years. In this case, as discussed above, a credit card 
issuer would be required under proposed Sec.  226.7(b)(12) to disclose 
on the periodic statement: (1) The warning statement; (2) the minimum 
payment repayment estimate; (3) the minimum payment total cost 
estimate; (4) the fact that the minimum payment repayment estimate and 
the minimum payment total cost estimate are based on the current 
outstanding balance shown on the periodic statement, and the fact that 
the minimum payment repayment estimate and the minimum payment total 
cost estimate are based on the assumption that only minimum payments 
are made and no other amounts are added to the balance; (5) the 
estimated monthly payment for repayment in 36 months; (6) the total 
cost estimate for repayment in 36 months; (7) the savings estimate for 
repayment in 36 months; (8) the fact that the card issuer estimates 
that the consumer will repay the outstanding balance shown on the 
periodic statement in 3 years if the consumer pays the estimated 
monthly payment each month for 3 years; and (9) the toll-free telephone 
number for obtaining information about credit counseling services.
    As shown in proposed Sample G-18(C)(1), a card issuer would be 
required to provide the following disclosures in the form of a table 
with headings, content and format substantially similar to proposed 
Sample G-18(C)(1): (1) The fact that the minimum payment repayment 
estimate and the minimum payment total cost estimate are based on the 
assumption that only minimum payments are made; (2) the minimum payment 
repayment estimate; (3) the minimum payment total cost estimate; (4) 
the estimated monthly payment for repayment in 36 months; (5) the fact 
the card issuer estimates that the consumer will repay the outstanding 
balance shown on the periodic statement in 3 years if the consumer pays 
the estimated monthly payment each month for 3 years; (6) total cost 
estimate for repayment in 36 months; and (7) the savings estimate for 
repayment in 36 months. The following information would be incorporated 
into the headings for the proposed table: (1) The fact that the minimum 
payment repayment estimate and the minimum payment total cost estimate 
are based on the current outstanding balance shown on the periodic 
statement; and (2) the fact that the minimum payment repayment estimate 
and the minimum payment total cost estimate are based on the assumption 
that no other amounts are added to the balance. The warning statement 
would be disclosed above the proposed table and the toll-free telephone 
number would be disclosed below the proposed table.
    Proposed Sample G-18(C)(2) applies when amortization occurs and the 
minimum payment repayment estimate disclosed on the periodic statement 
is equal to or less than 3 years. In this case, as discussed above, a 
credit card issuer would be required under proposed Sec.  226.7(b)(12) 
to disclose on the periodic statement: (1) The warning statement; (2) 
the minimum payment repayment estimate; (3) the minimum payment total 
cost estimate; (4) the fact

[[Page 54141]]

that the minimum payment repayment estimate and the minimum payment 
total cost estimate are based on the current outstanding balance shown 
on the periodic statement, and the fact that the minimum payment 
repayment estimate and the minimum payment total cost estimate are 
based on the assumption that only minimum payments are made and no 
other amounts are added to the balance; and (5) the toll-free telephone 
number for obtaining information about credit counseling services.
    As shown in proposed Sample G-18(C)(2), disclosure of the above 
information would be similar in format to how this information is 
disclosed in proposed Sample G-18(C)(1). Specifically, as shown in 
proposed Sample G-18(C)(2), a card issuer would be required to disclose 
the following disclosures in the form of a table with headings, content 
and format substantially similar to proposed Sample G-18(C)(2): (1) The 
fact that the minimum payment repayment estimate and the minimum 
payment total cost estimate are based on the assumption that only 
minimum payments are made; (2) the minimum payment repayment estimate; 
and (3) the minimum payment total cost estimate. The following 
information would be incorporated into the headings for the proposed 
table: (1) The fact that the minimum payment repayment estimate and the 
minimum payment total cost estimate are based on the current 
outstanding balance shown on the periodic statement; and (2) the fact 
that the minimum payment repayment estimate and the minimum payment 
total cost estimate are based on the assumption that no other amounts 
are added to the balance. The warning statement would be disclosed 
above the proposed table and the toll-free telephone number would be 
disclosed below the proposed table.
    Proposed Sample G-18(C)(3) applies when negative or no amortization 
occurs. In this case, as discussed above, a credit card issuer would be 
required under proposed Sec.  226.7(b)(12) to disclose on the periodic 
statement: (1) The following statement: Minimum Payment Warning: Even 
if you make no more charges using this card, if you make only the 
minimum payment each month we estimate you will never pay off the 
balance shown on this statement because your payment will be less than 
the interest charged each month;'' (2) the following statement: ``If 
you make more than the minimum payment each period, you will pay less 
in interest and pay off your balance sooner;'' (3) the estimated 
monthly payment for repayment in 36 months; (4) the fact the card 
issuer estimates that the consumer will repay the outstanding balance 
shown on the periodic statement in 3 years if the consumer pays the 
estimated monthly payment each month for 3 years; and (5) the toll-free 
telephone number for obtaining information about credit counseling 
services.
    As shown in proposed Sample G-18(C)(3), none of the above 
information would be required to be in the form of a table, 
notwithstanding TILA's requirement that the repayment information 
(except the warning statement) be in the form of a table. The Board 
proposes an exemption to this TILA requirement pursuant to the Board's 
authority exception and exemption authorities under TILA Section 
105(a). The Board does not believe that the tabular format is a useful 
format for disclosing that negative or no amortization is occurring. 
The Board believes that a narrative format is better than a tabular 
format for communicating to consumers that making only minimum payments 
will not repay the balance shown on the periodic statement. For 
consistency, proposed Sample G-18(C)(3) also provides the disclosures 
about repayment in 36 months in a narrative form as well. To help 
ensure that consumers notice the disclosures about negative or no 
amortization and the disclosures about repayment in 36 months, the 
Board would require that card issuers disclose certain key information 
in bold text, as shown in proposed Sample G-18(C)(3).
    As discussed above, TILA Section 127(b)(11)(D), as revised by the 
Credit Card Act, provides that the toll-free telephone number for 
obtaining credit counseling information must be disclosed in the table 
with: (1) The minimum payment repayment estimate; (2) the minimum 
payment total cost estimate; (3) the estimated monthly payment for 
repayment in 36 months; and (4) the total cost estimate for repayment 
in 36 months. As discussed above, the Board does not propose that the 
toll-free telephone number be in a tabular format. See proposed Samples 
G-18(C)(1), G-18(C)(2) and G-18(C)(3). The Board proposes this 
exemption pursuant to the Board's exception and exemption authorities 
under TILA Section 105(a), as discussed above. The Board believes that 
it might be confusing to consumers to include the toll-free telephone 
number in the table because it does not logically flow from the other 
information included in the table. To help ensure that the toll-free 
telephone number is noticeable to consumer, the Board proposes to 
require that the toll-free telephone number be grouped with the other 
repayment information.
    Format requirements set forth in proposed Sec.  226.7(b)(13). 
Proposed Sec.  226.7(b)(12)(iii) also provides that a credit card 
issuer must provide the repayment disclosures in accordance with the 
format requirements of proposed Sec.  226.7(b)(13). As discussed in 
more detail in the section-by-section analysis to proposed Sec.  
226.7(b)(13), the Board proposes in Sec.  226.7(b)(13) to require that 
the repayment disclosures required to be disclosed under proposed Sec.  
226.7(b)(12) must be disclosed closely proximate to the minimum payment 
due. In addition, under the proposal, the repayment disclosures must be 
grouped together with the due date, late payment fee and annual 
percentage rate, ending balance, and minimum payment due, and this 
information must be disclosed on the front of the first page of the 
periodic statement.
7(b)(12)(iv) Provision of Information About Credit Counseling Services
    Section 201(c) of the Credit Card Act requires the Board to issue 
guidelines by rule, in consultation with the Secretary of the Treasury, 
for the establishment and maintenance by creditors of the toll-free 
number disclosed on the periodic statement from which consumers can 
obtain information about accessing credit counseling and debt 
management services. The Credit Card Act requires that these guidelines 
ensure that consumers are referred ``only [to] those nonprofit and 
credit counseling agencies approved by a United States bankruptcy 
trustee pursuant to [11 U.S.C. 111(a)].'' The Board proposes to 
implement Section 201(c) of the Credit Card Act in Sec.  
226.7(b)(12)(iv). In developing this proposal, the Board consulted with 
the Treasury Department as well as the Executive Office for United 
States Trustees.
    Prior to filing a bankruptcy petition, a consumer generally must 
have received ``an individual or group briefing (including a briefing 
conducted by telephone or on the Internet) that outlined the 
opportunities for available credit counseling and assisted [the 
consumer] in performing a related budget analysis.'' 11 U.S.C. 109(h). 
This briefing can only be provided by ``nonprofit budget and credit 
counseling agencies that provide 1 or more [of these] services * * * 
[and are] currently approved by the United States trustee (or the 
bankruptcy administrator, if any).'' 11 U.S.C. 111(a)(1); see also 11 
U.S.C. 109(h). In order to be approved to provide credit counseling 
services, an agency must, among other things: Be a nonprofit entity; 
demonstrate that it will

[[Page 54142]]

provide qualified counselors, maintain adequate provision for 
safekeeping and payment of client funds, and provide adequate 
counseling with respect to client credit problems; charge only a 
reasonable fee for counseling services and make such services available 
without regard to ability to pay the fee; and provide trained 
counselors who receive no commissions or bonuses based on the outcome 
of the counseling services. See 11 U.S.C. 111(c).
    Proposed Sec.  226.7(b)(12)(iv)(A) provides that a card issuer must 
provide through the toll-free telephone number disclosed pursuant to 
proposed Sec.  226.7(b)(12)(i)(E) or (ii)(E) the name, street address, 
telephone number, and Web site address for at least three organizations 
that have been approved by the United States Trustee or a bankruptcy 
administrator pursuant to 11 U.S.C. 111(a)(1) to provide credit 
counseling services in the State in which the billing address for the 
account is located or the State specified by the consumer. In addition, 
proposed Sec.  226.7(b)(12)(iv)(B) requires that, upon the request of 
the consumer and to the extent available from the United States Trustee 
or a bankruptcy administrator, the card issuer must provide the 
consumer with the name, street address, telephone number, and Web site 
address for at least one organization meeting the above requirements 
that provides credit counseling services in a language other than 
English that is specified by the consumer.
    The United States Trustee collects the name, street address, 
telephone number, and Web site address for approved organizations and 
provides that information to the public through its Web site.\11\ The 
United States Trustee's Web site organizes this information by State as 
well as by the language in which the organization can provide credit 
counseling services. For jurisdictions where credit counseling 
organizations are approved by a bankruptcy administrator pursuant to 11 
U.S.C. 111(a)(1), a card issuer can obtain this information from the 
relevant administrator. Accordingly, the information that a card issuer 
is required to provide by proposed Sec.  226.7(b)(12)(iv) is readily 
available.
---------------------------------------------------------------------------

    \11\ See U.S Trustee Program, List of Credit Counseling Agencies 
Approved Pursuant to 11 U.S.C. 111 (available at http://www.usdoj.gov/ust/eo/bapcpa/ccde/cc_approved.htm).
---------------------------------------------------------------------------

    Because different credit counseling organizations may provide 
different services and charge different fees, the Board believes that 
providing information regarding at least three approved organizations 
will enable consumers to make a choice about the organization that best 
suits their needs. However, the Board solicits comment on whether card 
issuers should provide information regarding a different number of 
approved organizations.
    As proposed, Sec.  226.7(b)(12)(iv) relies in two respects on the 
Board's authority under TILA Section 105(a) to make adjustments or 
exceptions to effectuate the purposes of TILA or to facilitate 
compliance therewith. See 15 U.S.C. 1604(a). First, although revised 
TILA Section 127(b)(11)(B)(iv) and Section 201(c)(1) of the Credit Card 
Act refer to the creditors' obligation to provide information about 
accessing ``credit counseling and debt management services,'' proposed 
Sec.  226.7(b)(12)(iv) only requires the creditor to provide 
information about obtaining credit counseling services.\12\ Although 
credit counseling may include information that assists the consumer in 
managing his or her debts, 11 U.S.C. 109(h) and 111(a)(1) do not 
require the United States Trustee or a bankruptcy administrator to 
approve organizations to provide debt management services. Because 
Section 201(c) of the Credit Card Act requires that creditors only 
provide information about organizations approved pursuant to 11 U.S.C. 
111(a), the Board does not believe that Congress intended to require 
creditors to provide information about services that are not subject to 
that approval process. Accordingly, proposed Sec.  226.7(b)(12)(iv) 
would not require card issuers to disclose information about debt 
management services.
---------------------------------------------------------------------------

    \12\ Similarly, proposed Sec.  226.7(b)(12)(i)(E) and (ii)(E) 
only require a card issuer to disclose on the periodic statement a 
toll-free telephone number where the consumer may acquire from the 
card issuer information about obtaining credit counseling services.
---------------------------------------------------------------------------

    Second, although Section 201(c)(2) of the Credit Card Act refers to 
credit counseling organizations approved pursuant to 11 U.S.C. 111(a), 
proposed Sec.  226.7(b)(12)(iv) clarifies that creditors may provide 
information only regarding organizations approved pursuant to 11 U.S.C. 
111(a)(1), which addresses the approval process for credit counseling 
organizations. In contrast, 11 U.S.C. 111(a)(2) addresses a different 
approval process for instructional courses concerning personal 
financial management.
    Proposed comment 7(b)(12)(iv)-1 would clarify that, when providing 
the information required by Sec.  226.7(b)(12)(iv)(A), the card issuer 
may use the billing address for the account or, at its option, allow 
the consumer to specify a State. The comment would also clarify that a 
card issuer does not satisfy the requirement to provide information 
regarding credit counseling agencies approved pursuant to 11 U.S.C. 
111(a)(1) by providing information regarding providers that have been 
approved to offer personal financial management courses pursuant to 11 
U.S.C. 111(a)(2).
    Proposed comment 7(b)(12)(iv)-2 would clarify that a card issuer 
complies with the requirements of Sec.  226.7(b)(12)(iv) if it provides 
the consumer with the information provided by the United States Trustee 
or a bankruptcy administrator, including information provided on the 
Web site operated by the United States Trustee. If, for example, the 
Web site address for an organization approved by the United States 
Trustee is not available from the Web site operated by the United 
States Trustee, a card issuer is not required to provide a Web site 
address for that organization. However, at least annually, the card 
issuer must verify and update the information it provides for 
consistency with the information provided by the United States Trustee 
or a bankruptcy administrator. The Board solicits comment on whether 
card issuers should be required to verify and update the credit 
counseling information they provide to consumers more or less 
frequently.
    Proposed comment 7(b)(12)(iv)-3 would clarify that, at their 
option, card issuers may use toll-free telephone numbers that connect 
consumers to automated systems, such as an interactive voice response 
system, through which consumers may obtain the information required by 
Sec.  226.7(b)(12)(iv) by inputting information using a touch-tone 
telephone or similar device.
    Proposed comment 7(b)(12)(iv)-4 would clarify that a card issuer 
may provide a toll-free telephone number that is designed to handle 
customer service calls generally, so long as the option to receive the 
information required by Sec.  226.7(b)(12)(iv) is prominently disclosed 
to the consumer. For automated systems, the option to receive the 
information required by Sec.  226.7(b)(12)(iv) is prominently disclosed 
to the consumer if it is listed as one of the options in the first menu 
of options given to the consumer, such as ``Press or say `3' if you 
would like information about credit counseling services.'' If the 
automated system permits callers to select the language in which the 
call is conducted and in which information is provided, the menu to 
select the language may precede the menu with the option to receive 
information about accessing credit counseling services.

[[Page 54143]]

    Proposed comment 7(b)(12)(iv)-5 would clarify that, at their 
option, card issuers may use a third party to establish and maintain a 
toll-free telephone number for use by the issuer to provide the 
information required by Sec.  226.7(b)(12)(iv).
    Proposed comment 7(b)(12)(iv)-6 would clarify that, when providing 
the toll-free telephone number on the periodic statement pursuant to 
Sec.  226.7(b)(12)(iv), a card issuer at its option may also include a 
reference to a Web site address (in addition to the toll-free telephone 
number) where its customers may obtain the information required by 
Sec.  226.7(b)(12)(iv), so long as the information provided on the Web 
site complies with Sec.  226.7(b)(12)(iv). The Web site address 
disclosed must take consumers directly to the Web page where 
information about accessing credit counseling may be obtained. In the 
alternative, the card issuer may disclose the Web site address for the 
Web page operated by the United States Trustee where consumers may 
obtain information about approved credit counseling organizations. 
Finally, proposed comment 7(b)(12)(iv)-7 would clarify that, if a 
consumer requests information about credit counseling services, the 
card issuer may not provide advertisements or marketing materials to 
the consumer (except for providing the name of the issuer) prior to 
providing the information required by Sec.  226.7(b)(12)(iv). However, 
educational materials that do not solicit business are not considered 
advertisements or marketing materials for this purpose. The comment 
would also provide examples of how the restriction on the provision of 
advertisements and marketing materials applies in the context of the 
toll-free number and a Web page.
7(b)(12)(v) Exemptions
    As explained above, the Board proposes that the repayment 
disclosures required under proposed Sec.  226.7(b)(12) be provided only 
for a ``credit card account under an open-end (not home-secured) 
consumer credit plan,'' as that term is defined in proposed Sec.  
226.2(a)(15)(ii).
    In addition, as discussed below, the Board proposes several 
additional exemptions from the repayment disclosure requirements 
pursuant to the Board's exception and exemption authorities under TILA 
Section 105(a) and (f).
    As discussed in more detail below, the Board has considered the 
statutory factors carefully, and based on that review, believes that 
the following proposed exemptions are appropriate.
    Exemption for charge cards. The Board proposes to exempt charge 
cards from the repayment disclosure requirements because the Board 
believes that the repayment disclosures would not be useful for 
consumers with charge card accounts. See proposed Sec.  
226.7(b)(12)(vii)(A). Charge cards are used in connection with an 
account on which outstanding balances cannot be carried from one 
billing cycle to another and are payable when a periodic statement is 
received.
    Exemption where cardholders have paid their accounts in full for 
two consecutive billing cycles. In proposed Sec.  226.7(b)(vii)(B), the 
Board proposes to provide that a card issuer is not required to include 
the repayment disclosures on the periodic statement for a particular 
billing cycle immediately following two consecutive billing cycles in 
which the consumer paid the entire balance in full, had a zero balance 
or had a credit balance. The Board believes this approach strikes an 
appropriate balance between benefits to consumers of the repayment 
disclosures, and compliance burdens on issuers in providing the 
disclosures. Consumers who might benefit from the repayment disclosures 
would receive them. Consumers who carry a balance each month would 
always receive the repayment disclosures, and consumers who pay in full 
each month would not. Consumers who sometimes pay their bill in full 
and sometimes do not would receive the repayment disclosures if they do 
not pay in full two consecutive months (cycles). Also, if a consumer's 
typical payment behavior changes from paying in full to revolving, the 
consumer would begin receiving the repayment disclosures after not 
paying in full one billing cycle, when the disclosures would appear to 
be useful to the consumer. In addition, credit card issuers typically 
provide a grace period on new purchases to consumers (that is, 
creditors do not charge interest to consumers on new purchases) if 
consumers paid both the current balance and the previous balance in 
full. Thus, card issuers already currently capture payment history for 
consumers for two consecutive months (or cycles).
    The Board notes that card issuers would not be required to use this 
proposed exemption. A card issuer would be allowed to provide the 
repayment disclosures to all of its cardholders, even to those 
cardholders that fall within this proposed exemption. If issuers choose 
to provide voluntarily the repayment disclosures to those cardholders 
that fall within this exemption, the Board would expect issuers to 
follow the disclosure rules set forth in proposed Sec.  226.7(b)(12), 
the accompanying commentary, and proposed Appendix M1 to part 226 for 
those cardholders.
    Exemption where minimum payment would pay off the entire balance 
for a particular billing cycle. In proposed Sec.  226.7(b)(12)(v)(C), 
the Board proposes to exempt a card issuer from providing the repayment 
disclosure requirements for a particular billing cycle where paying the 
minimum payment due for that billing cycle will pay the outstanding 
balance on the account for that billing cycle. For example, if the 
entire outstanding balance on an account for a particular billing cycle 
is $20 and the minimum payment is $20, an issuer would not need to 
comply with the repayment disclosure requirements for that particular 
billing cycle. The Board believes that the repayment disclosures would 
not be helpful to consumers in this context.
    Other exemptions. In the January 2009 Regulation Z Rule, the Board 
in Sec.  226.7(b)(12)(v)(E) exempted a credit card account from the 
minimum payment disclosure requirements where a fixed repayment period 
for the account is specified in the account agreement and the required 
minimum payments will amortize the outstanding balance within the fixed 
repayment period. This exemption would be applicable to, for example, 
accounts that have been closed due to delinquency and the required 
monthly payment has been reduced or the balance decreased to 
accommodate a fixed payment for a fixed period of time designed to pay 
off the outstanding balance. See comment 7(b)(12)(v)-1.
    In addition, in the January 2009 Regulation Z Rule, the Board in 
Sec.  226.7(b)(12)(v)(F) exempted credit card issuers from providing 
the minimum payment disclosures on periodic statements in a billing 
cycle where the entire outstanding balance held by consumers in that 
billing cycle is subject to a fixed repayment period specified in the 
account agreement and the required minimum payments applicable to that 
balance will amortize the outstanding balance within the fixed 
repayment period. Some retail credit cards have several credit features 
associated with the account. One of the features may be a general 
revolving feature, where the required minimum payment for this feature 
does not pay off the balance in a specific period of time. The card 
also may have another feature that allows consumers to make specific 
types of purchases (such as furniture purchases, or other large 
purchases), and the required minimum payments for that feature will pay 
off the purchase

[[Page 54144]]

within a fixed period of time, such as one year. This exemption was 
meant to cover retail cards where the entire outstanding balance held 
by a consumer in a particular billing cycle is subject to a fixed 
repayment period specified in the account agreement. On the other hand, 
this exemption would not have applied in those cases where all or part 
of the consumer's balance for a particular billing cycle is held in a 
general revolving feature, where the required minimum payment for this 
feature does not pay off the balance in a specific period of time set 
forth in the account agreement. See comment 7(b)(12)(v)-2.
    In adopting these two exemptions to the minimum payment disclosure 
requirements in the January 2009 Regulation Z Rule, the Board stated 
that in these two situations, the minimum payment disclosure does not 
appear to provide additional information to consumers that they do not 
already have in their account agreements.
    The Board proposes not to include these two exemptions in proposed 
Sec.  226.7(b)(12)(v). In implementing Section 201 of the Credit Card 
Act, proposed Sec.  226.7(b)(12) would require additional repayment 
information beyond the disclosure of the estimated length of time it 
would take to repay the outstanding balance if only minimum payments 
are made, which was the main type of information that was required to 
be disclosed under the January 2009 Regulation Z Rule. As discussed 
above, under proposed Sec.  226.7(b)(12)(i), a card issuer would be 
required to disclose on the periodic statement information about the 
total costs in interest and principal to repay the outstanding balance 
if only minimum payments are made, and information about repayment of 
the outstanding balance in 36 months. Consumers would not know from the 
account agreements this additional information about the total cost in 
interest and principal of making minimum payments, and information 
about repayment of the outstanding balance in 36 months. Thus, these 
two exemptions may no longer be appropriate given the additional 
repayment information that must be provided on the periodic statement 
pursuant to proposed Sec.  226.7(b)(12). Nonetheless, the Board 
solicits comment on whether these exemptions should be retained. For 
example, the Board solicits comment on whether the repayment 
disclosures relating to repayment in 36 months would be helpful where a 
fixed repayment period longer than 3 years is specified in the account 
agreement and the required minimum payments will amortize the 
outstanding balance within the fixed repayment period. For these types 
of accounts, the Board solicits comment on whether consumers tend to 
enter into the agreement with the intent (and the ability) to repay the 
account balance over the life of the account, such that the disclosures 
for repayment of the account in 36 months would not be useful to 
consumers.
7(b)(13) Format Requirements
    Under the January 2009 Regulation Z Rule, creditors offering open-
end (not home-secured) plans are required to disclose the payment due 
date (if a late payment fee or penalty rate may be imposed) on the 
front side of the first page of the periodic statement. The amount of 
any late payment fee and penalty APR that could be triggered by a late 
payment is required to be disclosed in close proximity to the due date. 
In addition, the ending balance and the minimum payment disclosures 
must be disclosed closely proximate to the minimum payment due. Also, 
the due date, late payment fee, penalty APR, ending balance, minimum 
payment due, and the minimum payment disclosures must be grouped 
together. See Sec.  226.7(b)(13). In the supplementary information to 
the January 2009 Regulation Z Rule, the Board stated that these 
formatting requirements were intended to fulfill Congress' intent to 
have the due date, late payment and minimum payment disclosures enhance 
consumers' understanding of the consequences of paying late or making 
only minimum payments, and were based on consumer testing conducted for 
the Board in relation to the January 2009 Regulation Z Rule that 
indicated improved understanding when related information is grouped 
together. For the reasons described below, the Board proposes to retain 
these format requirements, with several revisions. Proposed Sample G-
18(D) in Appendix G to part 226 illustrates the proposed requirements.
    Due date and late payment disclosures. As discussed above under the 
section-by-section analysis to proposed Sec.  226.7(b)(11), Section 202 
of the Credit Card Act amends TILA Section 127(b)(12) to provide that 
for a ``credit card account under an open-end consumer credit plan,'' a 
creditor that charges a late payment fee must disclose in a conspicuous 
location on the periodic statement (1) the payment due date, or, if the 
due date differs from when a late payment fee would be charged, the 
earliest date on which the late payment fee may be charged, and (2) the 
amount of the late payment fee. In addition, if a late payment may 
result in an increase in the APR applicable to the credit card account, 
a creditor also must provide on the periodic statement a disclosure of 
this fact, along with the applicable penalty APR. The disclosure 
related to the penalty APR must be placed in close proximity to the 
due-date disclosure discussed above.
    Consistent with TILA Section 127(b)(12), as revised by the Credit 
Card Act, the Board proposes to retain the requirement in Sec.  
226.7(b)(13) that credit card issuers disclose the payment due date on 
the front side of the first page of the periodic statement. In 
addition, credit card issuers would be required to disclose the amount 
of any late payment fee and penalty APR that could be triggered by a 
late payment in close proximity to the due date. Also, the due date, 
late payment fee, penalty APR, ending balance, minimum payment due, and 
the repayment disclosures required by proposed Sec.  226.7(b)(12) must 
be grouped together. See Sec.  226.7(b)(13). The Board believes that 
these format requirements fulfill Congress' intent that the due date 
and late payment disclosures be grouped together and be disclosed in a 
conspicuous location on the periodic statement.
    Repayment disclosures. As discussed above under the section-by-
section analysis to proposed Sec.  226.7(b)(12), TILA Section 
127(b)(11)(D), as revised by the Credit Card Act, provides that the 
repayment disclosures (except for the warning statement) must be 
disclosed in the form and manner which the Board prescribes by 
regulation and in a manner that avoids duplication; and must be placed 
in a conspicuous and prominent location on the billing statement. 15 
U.S.C. 1637(b)(11)(D).
    Under proposed Sec.  226.7(b)(13), the ending balance and the 
repayment disclosures required under proposed Sec.  226.7(b)(12) must 
be disclosed closely proximate to the minimum payment due. In addition, 
proposed Sec.  226.7(b)(13) provides that the repayment disclosures 
must be grouped together with the due date, late payment fee, penalty 
APR, ending balance, and minimum payment due, and this information must 
appear on the front of the first page of the periodic statement. The 
Board believes that these proposed format requirements fulfill 
Congress' intent that the repayment disclosures be placed in a 
conspicuous and prominent location on the billing statement.
    Samples G-18(D), 18(E), 18(F) and 18(G). As adopted in the January 
2009 Regulation Z Rule, Samples G-18(D) and G-18(E) in Appendix G to 
part 226 illustrate the requirement to group together the due date, 
late payment fee,

[[Page 54145]]

penalty APR, ending balance, minimum payment due, and the repayment 
disclosures required by Sec.  226.7(b)(12). Sample G-18(D) applies to 
credit cards and includes all of the above disclosures grouped 
together. Sample G-18(E) applies to non-credit card accounts, and 
includes all of the above disclosures except for the repayment 
disclosures because the repayment disclosures only apply to credit card 
accounts. Samples G-18(F) and G-18(G) illustrate the front side of 
sample periodic statements and show the disclosures listed above.
    The Board proposes to revise Sample G-18(D), G-18(F) and G-18(G) to 
incorporate the new format requirements for the repayment disclosures, 
as shown in proposed Sample G-18(C)(1) and G-18(C)(2). See section-by-
section analysis to proposed Sec.  226.7(b)(12) for a discussion of 
these new format requirements. In addition, the Board proposes to 
delete Sample G-18(E) (which applies to non-credit card accounts) as 
unnecessary. Under the proposal, the formatting requirements in 
proposed Sec.  226.7(b)(13) generally are applicable only to credit 
card issuers because the due date, late payment fee, penalty APR, and 
repayment disclosures would apply only to a ``credit card account under 
an open-end (not home-secured) consumer credit plan,'' as that term is 
defined in proposed Sec.  226.2(a)(15)(ii).
7(b)(14) Deferred Interest or Similar Transactions
    In the May 2009 Regulation Z Proposed Clarifications, the Board 
proposed revisions to comment 7(b)-1 to require creditors to provide 
consumers with information regarding deferred interest or similar 
balances on which interest may be imposed under a deferred interest or 
similar program, as well as the interest charges accruing during the 
term of a deferred interest or similar program. 74 FR 20797-20798. The 
Board also proposed to add a new Sec.  226.7(b)(14) to require 
creditors to include on a consumer's periodic statement, for two 
billing cycles immediately preceding the date on which deferred 
interest or similar transactions must be paid in full in order to avoid 
the imposition of interest charges, a disclosure that the consumer must 
pay such transactions in full by that date in order to avoid being 
obligated for the accrued interest. 74 FR 20793. Furthermore, to 
provide additional guidance on compliance with the disclosure 
requirement set forth in proposed Sec.  226.7(b)(14), the Board 
proposed several complementary changes to comment 7(b)-1.
    Moreover, proposed Sample G-18(H) provided model language for 
making the disclosure required by proposed Sec.  226.7(b)(14), and the 
Board proposed that the language used to make the disclosure under 
Sec.  226.7(b)(14) would be required to be substantially similar to 
Sample G-18(H). 74 FR 20797. Finally, the Board proposed conforming 
technical changes to comment 5(b)(2)(ii)-1, which cross-references 
comment 7(b)-1. 74 FR 20797. The Board is republishing these same 
revisions for additional comment in this Federal Register notice, with 
some technical changes to account for the fact that related provisions 
previously set forth in the January 2009 FTC Act Final Rule, and 
proposed in the May 2009 FTC Act Rule Proposed Clarifications, have 
been modified and proposed in this Federal Register notice under 
Regulation Z.

Section 226.9 Subsequent Disclosure Requirements

9(c) Change in Terms
    Section 226.9(c) sets forth the advance notice requirements when a 
creditor changes the terms applicable to a consumer's account. As 
discussed below, the Board is proposing several changes to Sec.  
226.9(c)(2) as adopted in the January 2009 Regulation Z Rule and the 
associated staff commentary in order to conform to the new requirements 
of the Credit Card Act.
9(c)(1) Rules Affecting Home-Equity Plans
    In the January 2009 Regulation Z Rule, the Board preserved the 
existing rules for changes in terms for home-equity lines of credit in 
a new Sec.  226.9(c)(1), in order to clearly delineate the requirements 
for HELOCs from those applicable to other open-end credit. The Board 
noted that possible revisions to rules affecting HELOCs would be 
considered in the Board's review of home-secured credit, which was 
underway at the time that the January 2009 Regulation Z rule was 
published. On August 26, 2009, the Board published proposed revisions 
to those portions of Regulation Z affecting HELOCs in the Federal 
Register. As discussed in I. Background and Implementation of the 
Credit Card Act, in order to clarify that this proposed rule is not 
intended to amend or otherwise affect the August 2009 Regulation Z 
HELOC Proposal, the Board is not republishing Sec.  226.9(c)(1) in this 
Federal Register notice.
    The Board anticipates, however, that a final rule will be issued 
with regard to this proposal prior to completion of final rules 
regarding HELOCs. Therefore, the Board anticipates that it will include 
Sec.  226.9(c)(1), as adopted in the January 2009 Regulation Z Rule, in 
its final rulemaking based on this proposal, to give HELOC creditors 
guidance on how to comply with change-in-terms requirements between the 
effective date of this rule and the effective date of the forthcoming 
HELOC rules.
9(c)(2) Rules Affecting Open-End (Not Home-Secured) Plans
Credit Card Act \13\
    New TILA Section 127(i)(1) generally requires creditors to provide 
consumers with a written notice of an annual percentage rate increase 
at least 45 days prior to the effective date of the increase, for 
credit card accounts under an open-end consumer credit plan. 15 U.S.C. 
1637(i)(1). The statute establishes several exceptions to this general 
requirement. 15 U.S.C. 1637(i)(1) and (i)(2). The first exception 
applies when the change is an increase in an annual percentage rate 
upon expiration of a specified period of time, provided that prior to 
commencement of that period, the creditor clearly and conspicuously 
disclosed to the consumer the length of the period and the rate that 
would apply after expiration of the period. The second exception 
applies to increases in variable annual percentage rates that change 
according to operation of a publicly available index that is not under 
the control of the creditor. Finally, a third exception applies to rate 
increases due to the completion of, or failure of a consumer to comply 
with, the terms of a workout or temporary hardship arrangement, 
provided that prior to the commencement of such arrangement the 
creditor clearly and conspicuously disclosed to the consumer the terms 
of the arrangement, including any increases due to completion or 
failure.
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    \13\ For convenience, this section summarizes the provisions of 
the Credit Card Act that apply both to advance notices of changes in 
terms and rate increases. Consistent with the approach it took in 
the January 2009 Regulation Z Rule and the July 2009 Regulation Z 
Interim Final Rule, the Board is implementing the advance notice 
requirements applicable to contingent rate increases set forth in 
the cardholder agreement in a separate section (Sec.  226.9(g)) from 
those advance notice requirements applicable to changes in the 
cardholder agreement (Sec.  226.9(c)). The distinction between these 
types of changes is that Sec.  226.9(g) addresses changes in a rate 
being applied to a consumer's account consistent with the existing 
terms of the cardholder agreement, while Sec.  226.9(c) addresses 
changes in the underlying terms of the agreement.
---------------------------------------------------------------------------

    In addition to the rules in new TILA Section 127(i)(1) regarding 
rate increases, new TILA Section 127(i)(2) establishes a 45-day advance 
notice

[[Page 54146]]

requirement for significant changes, as determined by rule of the 
Board, in the terms (including an increase in any fee or finance 
charge) of the cardholder agreement between the creditor and the 
consumer. 15 U.S.C. 1637(i)(2).
    New TILA Section 127(i)(3) also establishes an additional content 
requirement for notices of interest rate increases or significant 
changes in terms provided pursuant to new TILA Section 127(i). 15 
U.S.C. 1637(i)(3). Such notices are required to contain a brief 
statement of the consumer's right to cancel the account, pursuant to 
rules established by the Board, before the effective date of the rate 
increase or other change disclosed in the notice. In addition, new TILA 
Section 127(i)(4) states that closure or cancellation of an account 
pursuant to the consumer's right to cancel does not constitute a 
default under the existing cardholder agreement, and does not trigger 
an obligation to immediately repay the obligation in full or through a 
method less beneficial than those listed in revised TILA Section 
171(c)(2). 15 U.S.C. 1637(i)(4). The disclosure associated with the 
right to cancel is discussed in the section-by-section analysis to 
Sec.  226.9(c) and (g), while the substantive rules regarding this new 
right are discussed in the section-by-section analysis to Sec.  
226.9(h).
    The Board implemented TILA Section 127(i), which was effective 
August 20, 2009, in the July 2009 Regulation Z Interim Final Rule. 
However, the Board is now proposing to implement additional provisions 
of the Credit Card Act that are effective on February 22, 2010 that 
have an impact on the content of change-in-terms notices and the types 
of changes that are permissible upon provision of a change-in-terms 
notice pursuant to Sec.  226.9(c) or (g). For example, revised TILA 
Section 171(a), which the Board proposes to implement in a new Sec.  
226.55, as discussed elsewhere in this Federal Register notice 
generally prohibits increases in annual percentage rates, fees, and 
finance charges applicable to outstanding balances, subject to several 
exceptions. In addition, revised TILA Section 171(b) requires, for 
certain types of penalty rate increases, that the advance notice state 
the reason for a rate increase. Finally, for penalty rate increases 
applied to outstanding balances when the consumer fails to make a 
minimum payment within 60 days after the due date, as permitted by 
revised TILA Section 171(b)(4), a creditor will be required to disclose 
in the notice of the increase that the increase will be terminated if 
the consumer makes the subsequent six minimum payments on time.
January 2009 Regulation Z Rule and July 2009 Regulation Z Interim Final 
Rule
    As discussed in I. Background and Implementation of the Credit Card 
Act, the Board is proposing to implement the changes contained in the 
Credit Card Act in a manner consistent with the January 2009 Regulation 
Z Rule, to the extent permitted under the statute. Accordingly, the 
Board is proposing to retain those requirements of the January 2009 
Regulation Z Rule that are not directly affected by the Credit Card Act 
in this rulemaking, concurrently with the promulgation of regulations 
implementing the provisions of the Credit Card Act effective February 
22, 2010.\14\ Consistent with this approach, the Board is proposing to 
use Sec.  226.9(c)(2) of the January 2009 Regulation Z Rule as the 
basis for its regulations to implement the change-in-terms requirements 
of the Credit Card Act. Proposed Sec.  226.9(c)(2) also is intended, 
except where noted, to contain requirements that are substantively 
equivalent to the requirements of the July 2009 Regulation Z Interim 
Final Rule. Accordingly, the Board is proposing to adopt a revised 
version of Sec.  226.9(c)(2) of the January 2009 Regulation Z Rule, 
with several amendments necessary to conform to the new Credit Card 
Act. While the Board is republishing revised Sec.  226.9(c)(2) and the 
associated commentary in its entirety, this supplementary information 
will focus on highlighting those aspects in which proposed Sec.  
226.9(c)(2) differs from Sec.  226.9(c)(2) of the January 2009 
Regulation Z Rule.
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    \14\ However, as discussed in I. Background and Implementation 
of the Credit Card Act, the Board intends to leave in place the 
mandatory compliance date for certain aspects of proposed Sec.  
226.9(c)(2) that are not directly required by the Credit Card Act. 
These provisions would have a mandatory compliance date of July 1, 
2010, consistent with the effective date that the Board adopted in 
the January 2009 Regulation Z Rule. For example, the Board is not 
proposing to require a tabular format for certain change-in-terms 
notice requirements before the July 1, 2010 effective date.
---------------------------------------------------------------------------

May 2009 Regulation Z Proposed Clarifications
    On May 5, 2009, the Board published for comment in the Federal 
Register proposed clarifications to the January 2009 Regulation Z Rule. 
See 74 FR 20784. Several of these proposed clarifications pertain to 
the advance notice requirements in Sec.  226.9(c). The Board is 
republishing the May 2009 Regulation Z Proposed Clarifications that 
affect proposed Sec.  226.9(c)(2), with revisions to the extent 
appropriate, as discussed further in this supplementary information.
9(c)(2)(i) Changes Where Written Advance Notice Is Required
    Section Sec.  226.9(c)(2) sets forth the change-in-terms notice 
requirements for open-end consumer credit plans that are not home-
secured. Proposed paragraph (c)(2)(i) states that a creditor must 
generally provide a written notice at least 45 days prior to the 
change, when any term required to be disclosed under Sec.  226.6(b)(3), 
(b)(4), or (b)(5) is changed or the required minimum periodic payment 
is increased, unless an exception applies. This rule is intended to be 
substantively equivalent to Sec.  226.9(c)(2) of the January 2009 
Regulation Z Rule. The exceptions, as discussed below, are set forth in 
proposed paragraph (c)(2)(v). In addition, paragraph (c)(2)(iii) 
provides that 45 days' advance notice is not required for those changes 
that the Board is not designating as ``significant changes'' in terms 
using its authority under new TILA Section 127(i). Proposed Sec.  
226.9(c)(2)(iii), which is discussed in more detail in this 
supplementary information, also is intended to be equivalent in 
substance to the Board's January 2009 Regulation Z Rule.
    Proposed Sec.  226.9(c)(2)(i) sets forth two additional 
clarifications of the scope of the change-in-terms notice requirements, 
consistent with Sec.  226.9(c)(2) of the January 2009 Regulation Z Rule 
and the July 2009 Regulation Z Interim Final Rule. First, the 45-day 
advance notice requirement does not apply if the consumer has agreed to 
the particular change; in that case, the notice need only be given 
before the effective date of the change. Second, proposed Sec.  
226.9(c)(2) also notes that increases in the rate applicable to a 
consumer's account due to delinquency, default, or as a penalty 
described in Sec.  226.9(g) that are not made by means of a change in 
the contractual terms of a consumer's account must be disclosed 
pursuant to that section.
    The Board notes that proposed Sec.  226.9(c)(2) would apply to all 
open-end (not home-secured) credit, consistent with the January 2009 
Regulation Z Rule. TILA Section 127(i), as adopted by the Credit Card 
Act and as implemented in the July 2009 Regulation Z Interim Final Rule 
for the period between August 20, 2009 and February 22, 2010, applies 
only to credit card accounts. However, the advance notice requirements 
adopted by the Board in January 2009 apply to all open-end (not home-
secured) credit. For

[[Page 54147]]

consistency with the January 2009 Regulation Z Rule, the proposal 
accordingly would apply Sec.  226.9(c)(2) to all open-end (not home-
secured) credit. The Board notes that while the general notice 
requirements are consistent for credit card accounts and other open-end 
credit that is not home-secured, there are certain content and other 
requirements, such as a consumer's right to reject certain changes in 
terms, that apply only to credit card accounts. As discussed in more 
detail in the supplementary information to Sec.  226.9(c)(2)(iv), the 
regulation would apply such requirements only to credit card accounts.
9(c)(2)(ii) Significant Changes in Account Terms
    Pursuant to new TILA Section 127(i), the Board has the authority to 
determine by rule what are significant changes in the terms of the 
cardholder agreement between a creditor and a consumer. The Board is 
proposing Sec.  226.9(c)(2)(ii) to identify which changes are 
significant changes in terms. Similar to the January 2009 Regulation Z 
Rule, Sec.  226.9(c)(2)(ii) would state that for the purposes of Sec.  
226.9(c), a significant change in account terms means changes to terms 
required to be disclosed in the table provided at account opening 
pursuant to Sec.  226.6(b)(1) and (b)(2). The terms included in the 
account-opening table are those that the Board determined, based on its 
consumer testing, to be the most important to consumers. In the July 
2009 Regulation Z Interim Final Rule, the Board had expressly listed 
these terms in Sec.  226.9(c)(2)(ii). Because Sec.  226.6(b) was not in 
effect as of August 20, 2009, the Board could not identify these terms 
by a cross-reference to Sec.  226.6(b). However, proposed Sec.  
226.9(c)(2)(ii) is intended to be substantively equivalent to the list 
of terms included in Sec.  226.9(c)(2)(ii) of the July 2009 Regulation 
Z Interim Final Rule. However, for clarity, the Board is proposing to 
amend the text of Sec.  226.9(c)(2)(ii) to cross-reference the 
requirements of Sec.  226.6(b)(1) and (b)(2).
9(c)(2)(iii) Charges Not Covered by Sec.  226.6(b)(1) and (b)(2)
    Proposed Sec.  226.9(c)(2)(iii) sets forth the disclosure 
requirements for changes in terms required to be disclosed under Sec.  
226.6(b)(3) that are not significant changes in account terms as 
described in Sec.  226.9(c)(2)(ii). Consistent with TILA Section 
127(i), the Board is only proposing a 45-day notice period for changes 
in the terms that are required to be disclosed as a part of the 
account-opening table under proposed Sec.  226.6(b)(1) and (b)(2) or 
for increases in the required minimum periodic payment. A different 
disclosure requirement would apply when a creditor increases any 
component of a charge, or introduces a new charge, that is imposed as 
part of the plan under proposed Sec.  226.6(b)(3) but is not required 
to be disclosed as part of the account-opening summary table under 
proposed Sec.  226.6(b)(1) and (b)(2). Under those circumstances, the 
proposal would require the creditor to either, at its option (1) 
provide at least 45 days' written advance notice before the change 
becomes effective, or (2) provide notice orally or in writing of the 
amount of the charge to an affected consumer at a relevant time before 
the consumer agrees to or becomes obligated to pay the charge. This is 
consistent with the requirements of both the January 2009 Regulation Z 
Rule and the July 2009 Regulation Z Interim Final Rule.
9(c)(2)(iv) Disclosure Requirements
    Proposed Sec.  226.9(c)(2)(iv) contains the content and formatting 
requirements for change-in-terms notices required to be given for 
significant changes in account terms pursuant to proposed Sec.  
226.9(c)(2)(i). Proposed Sec.  226.9(c)(2)(iv)(A) sets forth the 
content that would be required in notices under Sec.  226.9(c)(2)(i) 
for all open-end (not home-secured) credit and mirrors the content 
required to be disclosed in change-in-terms notices pursuant to the 
Board's January 2009 Regulation Z Rule. Notices provided pursuant to 
Sec.  226.9(c)(2)(i) would be required to include (1) a summary of the 
changes made to terms required by Sec.  226.6(b)(1) and (b)(2) or of 
any increase in the required minimum periodic payment, (2) a statement 
that changes are being made to the account, (3) for accounts other than 
credit card accounts under an open-end consumer credit plan subject to 
Sec.  226.9(c)(2)(iv)(B), a statement indicating that the consumer has 
the right to opt out of these changes, if applicable, and a reference 
to additional information describing the opt-out right provided in the 
notice, if applicable, (4) the date the changes will become effective, 
(5) if applicable, a statement that the consumer may find additional 
information about the summarized changes, and other changes to the 
account, in the notice, (6) if the creditor is changing a rate on the 
account other than a penalty rate, a statement that if a penalty rate 
currently applies to the consumer's account, the new rate referenced in 
the notice does not apply to the consumer's account until the 
consumer's account balances are no longer subject to the penalty rate, 
and (7) if the change in terms being disclosed is an increase in an 
annual percentage rate, the balances to which the increased rate will 
be applied and, if applicable, a statement identifying the balances to 
which the current rate will continue to apply as of the effective date 
of the change in terms.
    The content required by proposed Sec.  226.9(c)(2)(iv)(A) generally 
mirrors the content required under Sec.  226.9(c)(2)(iii) of the 
January 2009 Regulation Z Rule. Creditors would be required to disclose 
information regarding the balances to which the increased rate will 
apply as well as a statement, if applicable, identifying balances to 
which the current rate will continue to apply as of the effective date 
of the increase. This content was not included in the July 2009 
Regulation Z Interim Final Rule because at that time there were no 
substantive limitations regarding rate increases equivalent to those in 
proposed Sec.  226.55. However, consistent with the January 2009 
Regulation Z Rule, the Board believes that a statement identifying to 
which balances an increased rate will apply to is an important 
disclosure in light of Sec.  226.55, in order to permit consumers to 
make informed decisions about their account usage.
    In addition, the Board is proposing to require a disclosure 
regarding any applicable right to opt out of changes under proposed 
Sec.  226.9(c)(2)(iv)(A)(3) only if the change is being made to an 
open-end (not home-secured) credit plan that is not a credit card 
account subject to Sec.  226.9(c)(2)(iv)(B). For credit card accounts, 
as discussed below and in the supplementary information to Sec. Sec.  
226.9(h) and 226.55, the Credit Card Act imposes independent 
substantive limitations on rate increases, and generally provides the 
consumer with a right to reject other significant changes being made to 
their accounts. A disclosure of this right to reject, when applicable, 
is required for credit card accounts under proposed Sec.  
226.9(c)(2)(iv)(B). Therefore, the Board believes a separate reference 
to other applicable opt-out rights is unnecessary and may be confusing 
to consumers, when the notice is given in connection with a change in 
terms applicable to a credit card account.
    Proposed Sec.  226.9(c)(2)(iv)(B) sets forth additional content 
requirements that are applicable only to credit card accounts under an 
open-end (not home-secured) consumer credit plan. In addition to the 
information required to be disclosed pursuant to Sec.  
226.9(c)(2)(iv)(A), credit card issuers making significant changes to 
terms must also disclose certain information regarding the consumer's 
right to reject the change pursuant to

[[Page 54148]]

Sec.  226.9(h). The substantive rule regarding the right to reject is 
discussed in connection with proposed Sec.  226.9(h); however, the 
associated disclosure requirements are set forth in Sec.  226.9(c)(2). 
In particular, a card issuer must generally include in the notice (1) a 
statement that the consumer has the right to reject the change or 
changes prior to the effective date, unless the consumer fails to make 
a required minimum periodic payment within 60 days after the due date 
for that payment, (2) instructions for rejecting the change or changes, 
and a toll-free telephone number that the consumer may use to notify 
the creditor of the rejection, and (3) if applicable, a statement that 
if the consumer rejects the change or changes, the consumer's ability 
to use the account for further advances will be terminated or 
suspended. Section 226.9(c)(2)(iv)(B) mirrors requirements made 
applicable to credit card issuers in the July 2009 Regulation Z Interim 
Final Rule, with several amendments discussed below.
    As discussed in the supplementary information to Sec.  226.9(h), 
the Board is proposing that a consumer's right to reject would not 
extend to increases in the required minimum payment, an increase in an 
annual percentage rate applicable to a consumer's account, a change in 
the balance computation method applicable to a consumer's account 
necessary to comply with the new prohibition on use of ``two-cycle'' 
balance computation methods in proposed Sec.  226.54, or changes due to 
the creditor not receiving the consumer's required minimum periodic 
payment within 60 days after the due date for that payment. The July 
2009 Regulation Z Interim Final Rule similarly excluded increases in a 
consumer's minimum payment from being subject to the right to reject. 
The Board also is proposing that the right to reject not apply to rate 
increases, because consumers will automatically receive the protections 
against rate increases applicable to their balances under proposed 
Sec.  226.55 without being required to take any action to reject the 
change. The Board recognizes that it would be an anomalous result for 
consumers to be able to reject a change in balance computation that is 
expressly required under the Credit Card Act and implementing rules. 
Finally, the Board would clarify that, as stated in proposed Sec.  
226.9(h)(3), the right to reject does not apply when the account is 
more than 60 days delinquent. Accordingly, for these types of changes 
creditors would not be required to give the disclosures associated with 
the right to reject in Sec.  226.9(c)(2)(iv)(B).
    Proposed Sec.  226.9(c)(2)(iv)(C) sets forth the formatting 
requirements that would apply to notices required to be given pursuant 
to Sec.  226.9(c)(2)(i). The proposed formatting requirements are 
generally the same as those that the Board adopted in Sec.  
226.9(c)(2)(iii) of the January 2009 Regulation Z Rule, except that the 
reference to the content of the notice would include, when applicable, 
the information about the right to reject that credit card issuers must 
disclose pursuant to Sec.  226.9(c)(2)(iv)(B). These formatting 
requirements are not affected by the Credit Card Act, and therefore the 
Board proposes to adopt them generally as adopted in January 2009. 
Accordingly, as discussed in I. Background and Implementation of the 
Credit Card Act, the Board is considering making these formatting 
requirements mandatory beginning on July 1, 2010, consistent with the 
effective date adopted for the January 2009 Regulation Z Rule. In 
addition, the Board is proposing to publish revised model forms that 
would reflect the new disclosure of the right to reject, when 
applicable.
    The Board is proposing to amend Sample G-20 and to add a new sample 
G-21 to illustrate how a card issuer may comply with the requirements 
of proposed Sec.  226.9(c)(2)(iv). The Board would amend references to 
these samples in Sec.  226.9(c)(2)(iv) and comment 9(c)(2)(iv)-8 
accordingly. Proposed Sample G-20 is a disclosure of a rate increase 
applicable to a consumer's credit card account. The sample explains 
when the new rate will apply to new transactions and to which balances 
the current rate will continue to apply. Sample G-21 illustrates an 
increase in the consumer's late payment and returned payment fees, and 
sets forth the content required in order to disclose the consumer's 
right to reject those changes.
9(c)(2)(v) Notice Not Required
    The Board is proposing Sec.  226.9(c)(2)(v) to set forth the 
exceptions to the general change-in-terms notice requirements for open-
end (not home-secured) credit. With several exceptions noted below, 
proposed Sec.  226.9(c)(2)(v) is intended to be substantively 
equivalent to Sec.  226.9(c)(2)(v) of the July 2009 Regulation Z 
Interim Final Rule. Proposed Sec.  226.9(c)(2)(v)(A) would retain 
several exceptions that are in current Sec.  226.9(c), including 
charges for documentary evidence, reductions of finance charges, 
suspension of future credit privileges (except as provided in Sec.  
226.9(c)(vi), discussed below), termination of an account or plan, or 
when the change results from an agreement involving a court proceeding. 
The Board is not including these changes in the set of ``significant 
changes'' giving rise to notice requirements pursuant to new TILA 
Section 127(i)(2). The Board believes that 45 days' advance notice is 
not necessary for these changes, which are not of the type that 
generally result in the imposition of a fee or other charge on a 
consumer's account that could come as a costly surprise. In addition, 
the Board believes that for safety and soundness reasons, issuers 
generally have a legitimate interest in suspending credit privileges or 
terminating an account or plan when a consumer's creditworthiness 
deteriorates, and that 45 days' advance notice of these types of 
changes therefore would not be appropriate.
    Proposed Sec.  226.9(c)(2)(v)(B) sets forth an exception contained 
in the Credit Card Act for increases in annual percentage rates upon 
the expiration of a specified period of time, provided that prior to 
the commencement of that period, the creditor disclosed to the consumer 
clearly and conspicuously in writing the length of the period and the 
annual percentage rate that would apply after that period. As discussed 
below, this disclosure would be required to be provided in close 
proximity and equal prominence to any disclosure of the rate that 
applies during that period, ensuring that it would be provided at the 
same time the consumer is informed of the temporary rate. In addition, 
in order to fall within this exception, the annual percentage rate that 
applies after the period ends may not exceed the rate previously 
disclosed.
    The exception generally mirrors the statutory language, except for 
two additional requirements. First, the Board's proposal expressly 
provides, consistent with July 2009 Regulation Z Interim Final Rule and 
the standard for Regulation Z disclosures under Subpart B that the 
disclosure of the period and annual percentage rate that will apply 
after the period is generally required to be in writing. See Sec.  
226.5(a)(1). Second, pursuant to its authority under TILA Section 
105(a) to prescribe regulations to effectuate the purposes of TILA, the 
Board is proposing to require that the disclosure of the length of the 
period and the annual percentage rate that would apply upon expiration 
of the period be set forth in close proximity and equal prominence to 
any disclosure of the rate that applies during the specified period of 
time. 15 U.S.C. 1604(a). The Board believes that both of

[[Page 54149]]

these requirements are appropriate in order to ensure that consumers 
receive, comprehend, and are able to retain the disclosures regarding 
the rates that will apply to their transactions.
    Proposed comment 9(c)(2)(v)-5 clarifies the timing of the 
disclosure requirements for telephone purchases financed by a merchant 
or private label credit card issuer. The Board is aware that the 
general requirement in the July 2009 Regulation Z Interim Final Rule 
that written disclosures be provided prior to commencement of the 
period during which a temporary rate will be in effect has caused some 
confusion for merchants who offer a promotional rate on the telephone 
to finance the purchase of goods. In order to clarify the application 
of the rule to such merchants, proposed comment 9(c)(2)(v)-5 would 
state that the timing requirements of Sec.  226.9(c)(2)(v)(B) are 
deemed to have been met, and written disclosures required by Sec.  
226.9(c)(2)(v)(B) may be provided as soon as reasonably practicable 
after the first transaction subject to a temporary rate if: (1) The 
first transaction subject to the temporary rate occurs when a consumer 
contacts a merchant by telephone to purchase goods and at the same time 
the consumer accepts an offer to finance the purchase at the temporary 
rate; (2) the merchant or third-party creditor permits consumers to 
return any goods financed subject to the temporary rate and return the 
goods free of cost after the merchant or third-party creditor has 
provided the written disclosures required by Sec.  226.9(c)(2)(v)(B); 
and (3) the disclosures required by Sec.  226.9(c)(2)(v)(B) and the 
consumer's right to reject the temporary rate offer and return the 
goods are disclosed to the consumer as part of the offer to finance the 
purchase. This clarification mirrors a timing rule for account-opening 
disclosures provided by merchants financing the purchase of goods by 
telephone under Sec.  226.5(b)(1)(iii) of the January 2009 Regulation Z 
Rule.
    The Board is also aware of operational issues arising from 
application of Sec.  226.9(c)(2)(v)(B) of the July 2009 Regulation Z 
Interim Final Rule to deferred interest or other promotional rate 
offers made at the time that a consumer is financing a purchase made at 
point of sale. At the present time, the systems available to provide 
disclosures to consumers at point of sale may not have access to the 
rate currently applicable to purchases made on the consumer's account. 
This could occur, for example, if the issuer offers a promotion to 
consumers with existing credit card accounts, and not all consumers in 
the portfolio have the same rate applicable to purchases. In addition, 
some consumers' accounts may currently be at a penalty rate that 
differs from the standard rates on accounts in the portfolio. The Board 
is aware that such issuers are encountering difficulty, at the present 
time, providing the disclosure required by Sec.  226.9(c)(2)(v)(B), 
which requires that the rate that will apply after the expiration of 
the promotional period be disclosed.
    This proposal, consistent with section 226.9(c)(2)(v)(B) of the 
July 2009 Regulation Z Interim Final Rule, requires disclosure of the 
specific rate that will apply to a given consumer's account after the 
expiration of a deferred interest or other promotional rate offer. The 
Board believes that, in general, the statutory requirement is best 
implemented by a rule stating that a single rate must be disclosed. 
However, the Board is supplementing its transition guidance to the July 
2009 Regulation Z Interim Final Rule to state, that for a brief period 
necessary to update their systems to disclose a single rate, issuers 
offering a deferred interest or other promotional rate program at point 
of sale may disclose a range of rates or an ``up to'' rate rather than 
a single rate. The Board notes that stating a range of rates or ``up 
to'' rate is only permissible for a brief transition period and expects 
that merchants and creditors will disclose a single rate that will 
apply when a deferred interest or other promotional rate expires in 
accordance with Sec.  226.9(c)(2)(v)(B) as soon as possible.
    The Board is retaining in the proposal comment 9(c)(2)(v)-6 from 
the July 2009 Regulation Z Interim Final Rule (redesignated as comment 
9(c)(2)(v)-7) to clarify that an issuer offering a deferred interest or 
similar program may utilize the exception in Sec.  226.9(c)(2)(v)(B). 
The comment also provides examples of how the required disclosures can 
be made for deferred interest or similar programs. The Board continues 
to believe that the application of Sec.  226.9(c)(2)(v)(B) to deferred 
interest arrangements is consistent with the Credit Card Act and that 
this clarification remains necessary in order to ensure that the 
proposed rule does not have unintended adverse consequences for 
deferred interest promotions.
    The Board is proposing to retain generally as adopted in the July 
2009 Regulation Z Interim Final Rule Sec.  226.9(c)(2)(v)(C), which 
also implements an exception contained in the Credit Card Act, for 
increases in variable annual percentage rates in accordance with a 
credit card or other account agreement that provides for a change in 
the rate according to operation of an index that is not under the 
control of the creditor and is available to the general public. The 
Board is proposing a minor amendment to the text of Sec.  
226.9(c)(2)(v)(C) to reflect the fact that this exception would apply 
to all open-end (not home-secured) credit. The Board believes that even 
absent this express exception, such a rate increase would not generally 
be a change in the terms of the cardholder or other account agreement 
that gives rise to the requirement to provide 45 days' advance notice, 
because the index, margin, and frequency with which the annual 
percentage rate will vary will all be specified in the cardholder or 
other account agreement in advance. However, in order to clarify that 
45 days' advance notice is not required for a rate increase that occurs 
due to adjustments in a variable rate tied to an index beyond the 
creditor's control, the Board is proposing to retain Sec.  
226.9(c)(2)(v)(C) of the July 2009 Regulation Z Interim Final Rule.
    Finally, the proposal retains Sec.  226.9(c)(2)(v)(D) from the July 
2009 Regulation Z Interim Final Rule, with several changes. Section 
226.9(c)(2)(v)(D) implements a statutory exception for increases in 
rates or fees or charges due to the completion of, or a consumer's 
failure to comply with the terms of, a workout or temporary hardship 
arrangement provided that the annual percentage rate or fee or charge 
applicable to a category of transactions following the increase does 
not exceed the rate that applied prior to the commencement of the 
workout or temporary hardship arrangement.
    The Board notes that the exception in proposed Sec.  
226.9(c)(2)(v)(D) applies both to completion of or failure to comply 
with a workout arrangement. In the July 2009 Regulation Z Interim Final 
Rule, the Board had implemented the exception that applies to 
completion of an arrangement is implemented in Sec.  226.9(c)(2)(v)(D), 
while the exception applicable to failure to comply with a workout or 
temporary hardship arrangement was implemented in Sec.  226.9(g). For 
clarity, the Board is proposing to implement both of these exceptions 
in a single Sec.  226.9(c)(2)(v)(D). The exception is conditioned on 
the creditor's having clearly and conspicuously disclosed, prior to the 
commencement of the arrangement, the terms of the arrangement 
(including any such increases due to such completion). The Board notes 
that the statutory exception applies in the event of either completion

[[Page 54150]]

of, or failure to comply with, the terms of such a workout or temporary 
hardship arrangement. This exception also generally mirrors the 
statutory language, except that the Board has expressly provided that 
the disclosures regarding the workout or temporary hardship arrangement 
are required to be in writing.
    The Board proposes to retain comment 9(c)(2)(v)-5 from the July 
2009 Regulation Z Interim Final Rule (redesignated as comment 
9(c)(2)(v)-6), which is applicable to the exceptions in both Sec.  
226.9(c)(2)(v)(B) and (c)(2)(v)(D), and provides additional 
clarification regarding the disclosure of variable annual percentage 
rates. The comment provides that if the creditor is disclosing a 
variable rate, the notice must also state that the rate may vary and 
how the rate is determined. The comment sets forth an example of how a 
creditor may make this disclosure. The Board believes that the fact 
that a rate is variable is an important piece of information of which 
consumers should be aware prior to commencement of a deferred interest 
promotion, a promotional rate, or a stepped rate program.
    Finally, the Board also proposes to retain comment 9(c)(2)(v)-7 of 
the July 2009 Regulation Z Interim Final Rule (redesignated as comment 
9(c)(2)(v)-8), which provides clarification as to what terms must be 
disclosed in connection with a workout or temporary hardship 
arrangement. The comment states that in order for the exception to 
apply, the creditor must disclose to the consumer the rate that will 
apply to balances subject to the workout or temporary hardship 
arrangement, as well as the rate that will apply if the consumer 
completes or fails to comply with the terms of, the workout or 
temporary hardship arrangement. For consistency with proposed Sec.  
226.55(b)(5)(i), the Board proposes to revise the comment to also state 
that the creditor must disclose the amount of any reduced fee or charge 
of a type required to be disclosed under Sec.  226.6(b)(2)(ii), 
(b)(2)(iii), or (b)(2)(xii) that will apply to balances subject to the 
arrangement, as well as the fee or charge that will apply if the 
consumer completes or fails to comply with the terms of the 
arrangement. The notice also must state, if applicable, that the 
consumer must make timely minimum payments in order to remain eligible 
for the workout or temporary hardship arrangement. The Board believes 
that it is important for a consumer to be notified of his or her 
payment obligations pursuant to a workout or similar arrangement, and 
that the rate, fee or charge may be increased if he or she fails to 
make timely payments.
9(c)(2)(vi) Reduction of the Credit Limit
    Consistent with the January 2009 Regulation Z Rule and the July 
2009 Regulation Z Interim Final Rule, the Board is proposing to retain 
Sec.  226.9(c)(2)(vi) to address notices of changes in a consumer's 
credit limit. Section 226.9(c)(2)(vi) requires an issuer to provide a 
consumer with 45 days' advance notice that a credit limit is being 
decreased or will be decreased prior to the imposition of any over-the-
limit fee or penalty rate imposed solely as the result of the balance 
exceeding the newly decreased credit limit. The Board is not including 
a decrease in a consumer's credit limit itself as a significant change 
in a term that requires 45 days' advance notice, for several reasons. 
First, the Board recognizes that creditors have a legitimate interest 
in mitigating the risk of a loss when a consumer's creditworthiness 
deteriorates, and believes there would be safety and soundness concerns 
with requiring creditors to wait 45 days to reduce a credit limit. 
Second, the consumer's credit limit is not a term generally required to 
be disclosed under Regulation Z or TILA. Finally, the Board believes 
that Sec.  226.9(c)(2)(vi) adequately protects consumers against the 
two most costly surprises potentially associated with a reduction in 
the credit limit, namely, fees and rate increases, while giving a 
consumer adequate time to mitigate the effect of the credit line 
reduction.
    Furthermore, proposed Sec.  226.55 would prohibit a creditor from 
applying an increased rate, fee, or charge to an existing balance as a 
result of transactions that exceeded the credit limit. In addition, 
proposed Sec.  226.56 would allow a creditor to charge a fee for 
transactions that exceed the credit limit only when the consumer has 
consented to such transactions.
Proposed Changes to Commentary to Sec.  226.9(c)(2)
    The commentary to Sec.  226.9(c)(2) generally is consistent with 
the commentary to Sec.  226.9(c)(2) of the January 2009 Regulation Z 
Rule, except for technical changes or changes discussed below. In 
addition, as discussed above, the Board is proposing to adopt new 
comment 9(c)(2)(v)-5 (and to renumber comments 9(c)(2)(v)-5 through 
9(c)(2)(v)-7 of the July 2009 Regulation Z Interim Final Rule 
accordingly as comments 9(c)(2)(v)-6 through 9(c)(2)(v)-8).
    The Board is proposing to amend comment 9(c)(2)(i)-6 to reference 
examples in Sec.  226.55 that illustrate how the advance notice 
requirements in Sec.  226.9(c) relate to the substantive rule regarding 
rate increases in proposed Sec.  226.55. In the January 2009 Regulation 
Z Rule, comment 9(c)(2)(i)-6 referred to the commentary to Sec.  
226.9(g). Because, as discussed in the supplementary information to 
Sec.  226.55, the Credit Card Act moved the substantive rule regarding 
rate increases into Regulation Z, the Board believes that it is not 
necessary to repeat the examples under Sec.  226.9.
    The Board also proposes to amend comment 9(c)(2)(v)-2 (adopted in 
the January 2009 Regulation Z Rule as comment 9(c)(2)(iv)-2) in order 
to conform with the new substantive and notice requirements of the 
Credit Card Act. This comment addresses the disclosures that must be 
given when a credit program allows consumers to skip or reduce one or 
more payments during the year or involves temporary reductions in 
finance charges. However, new Sec.  226.9(c)(2)(v)(B) requires a 
creditor to provide a notice of the period for which a temporarily 
reduced rate will be in effect, as well as a disclosure of the rate 
that will apply after that period, in order for a creditor to be 
permitted to increase the rate at the end of the period without 
providing 45 days' advance notice. Similarly, Sec.  226.55, discussed 
elsewhere in this supplementary information, requires a creditor to 
provide advance notice of a temporarily reduced rate if a creditor 
wants to preserve the ability to raise the rate on balances subject to 
that temporarily reduced rate. Accordingly, the Board is proposing 
amendments to clarify that if a credit program involves temporary 
reductions in an interest rate, no notice of the change in terms is 
required either prior to the reduction or upon resumption of the higher 
rates if these features are disclosed in advance in accordance with the 
requirements of Sec.  226.9(c)(2)(v)(B). See proposed comment 55(b)-3. 
The proposed comment further clarifies that if a creditor does not 
provide advance notice in accordance with Sec.  226.9(c)(2)(v)(B), that 
it must provide a notice that complies with the timing requirements of 
Sec.  226.9(c)(2)(i) and the content and format requirements of Sec.  
226.9(c)(2)(iv)(A), (B) (if applicable), and (C). The proposed comment 
notes that creditors should refer to Sec.  226.55 for additional 
restrictions on resuming the original rate that is applicable to credit 
card accounts under an open-end (not home-secured) plan.

[[Page 54151]]

May 2009 Regulation Z Proposed Clarifications
    As discussed in I. Background and Implementation of the Credit Card 
Act, the Board is generally republishing the May 2009 Regulation Z 
Proposed Clarifications in connection with this proposed rule. 
Accordingly, the Board is republishing proposed amendments to Sec.  
226.9(c)(2)(v) (proposed as Sec.  226.9(c)(2)(iv) of the May 2009 
Regulation Z Proposed Clarifications) and comments 9(c)(2)-4 and 
9(c)(2)(i)-3.
    The Board is republishing revisions to Sec.  226.9(c)(2)(v) 
(proposed in May 2009 as Sec.  226.9(c)(2)(iv)) and proposed comment 
9(c)(2)-4, which clarifies the relationship between the change-in-terms 
requirements of Sec.  226.9(c) and the notice provisions of Sec.  
226.9(b) that apply when a creditor adds a credit feature or delivers a 
credit access device for an existing open-end plan. See 74 FR 20787 for 
further discussion of these proposed amendments.
    Section 226.9(c)(2)(i), as proposed and under the January 2009 
Regulation Z Rule, provides that the 45-day advance notice timing 
requirement does not apply if the consumer has agreed to a particular 
change. In this case, notice must be given before the effective date of 
the change. Comment 9(c)(2)(i)-3 states that the provision is intended 
for use in ``unusual instances,'' such as when a consumer substitutes 
collateral or when the creditor may advance additional credit only if a 
change relatively unique to that consumer is made. In May 2009, the 
Board proposed to amend the comment to emphasize the limited scope of 
the exception and provide that the exception applies ``solely'' to the 
unique circumstances specifically identified in the comment. See 74 FR 
20788. The proposed comment would also add an example of an occurrence 
that would not be considered an ``agreement'' for purposes of relieving 
the creditor of its responsibility to provide an advance change-in-
terms notice. This example would state that an ``agreement'' does not 
include a consumer's request to reopen a closed account or to upgrade 
an existing account to another account offered by the creditor with 
different credit or other features. Thus, a creditor that treats an 
upgrade of a consumer's account as a change in terms would be required 
to provide the consumer 45 days' advance notice before increasing the 
rate for new transactions or increasing the amount of any applicable 
fees to the account in those circumstances.
    The Board is aware that some creditors have raised concerns about 
the 45-day notice requirement causing an undue delay when a consumer 
requests that his or her account be changed to a different product 
offered by the creditor, for example to take advantage of a rewards or 
other program. The Board has sought, in part, to address these concerns 
in proposed comment 5(b)(1)(i)-6, discussed above. The Board also 
continues to believe that the proposed clarification to comment 
9(c)(2)(i)-3 is appropriate for those circumstances in which a creditor 
treats an upgrade of an account as a change-in-terms in accordance with 
proposed comment 5(b)(1)(i)-6. In addition, it would be difficult to 
define by regulation the circumstances under which a consumer is deemed 
to have requested the account upgrade, versus circumstances in which 
the upgrade is suggested by the creditor. The Board seeks further 
comment on the operational and other burdens that would be associated 
with the proposed revision to comment 9(c)(2)(i)-3.
9(e) Disclosures Upon Renewal of Credit or Charge Card
    The Credit Card Act amended TILA Section 127(d), which sets forth 
the disclosures that card issuers must provide in connection with 
renewal of a consumer's credit or charge card account. 15 U.S.C. 
1637(d). TILA Section 127(d) is implemented in Sec.  226.9(e), which 
currently requires card issuers that assess an annual or other fee 
based on inactivity or activity, on a credit card account of the type 
subject to Sec.  226.5a, to provide a renewal notice before the fee is 
imposed. The creditor must provide disclosures required for credit card 
applications and solicitations (although not in a tabular format) and 
must inform the consumer that the renewal fee can be avoided by 
terminating the account by a certain date. The notice must generally be 
provided at least 30 days or one billing cycle, whichever is less, 
before the renewal fee is assessed on the account. Under current Sec.  
226.9(e), there is an alternative delayed notice procedure where the 
fee can be assessed provided the fee is reversed if the consumer is 
given notice and chooses to terminate the account.
    The Credit Card Act amended TILA Section 127(d) to eliminate the 
provision permitting creditors to provide an alternative delayed 
notice. Thus, all creditors will be required to provide the renewal 
notice described in Sec.  226.9(e)(1) prior to imposition of any annual 
or other periodic fee to renew a credit or charge card account of the 
type subject to Sec.  226.5a, including any fee based on account 
activity or inactivity. Creditors may no longer assess the fee and 
provide a delayed notice offering the consumer the opportunity to 
terminate the account and have the fee reversed. Accordingly, the Board 
is proposing to delete Sec.  226.9(e)(2) and to renumber Sec.  
226.9(e)(3) as Sec.  226.9(e)(2). The Board also proposes technical 
conforming changes to comments 9(e)-7, 9(e)(2)-1 (currently comment 
9(e)(3)-1), and 9(e)(2)-2 (currently comment 9(e)(3)-2).
    In addition, amended TILA Section 127(d) provides that a card 
issuer that has changed or amended any term of the account since the 
last renewal that has not been previously disclosed must provide the 
renewal disclosure, even if that card issuer does not charge a periodic 
or other fee for renewal of the credit or charge card account. The 
Board proposes to amend Sec.  226.9(e)(1) to provide that the renewal 
notice must be provided in those circumstances. The amended language in 
proposed Sec.  226.9(e)(1) would state, in part, that any card issuer 
that has changed or amended any term of a cardholder's account required 
to be disclosed under Sec.  226.6(b)(1) and (b)(2) that has not 
previously been disclosed to the consumer, shall mail or deliver 
written notice of the renewal to the cardholder. The Board proposes to 
use its authority pursuant to TILA Section 105(a) to clarify that the 
requirement to provide the renewal disclosures due to a change in 
account terms applies only if the change has not been previously 
disclosed and is a change of the type required to be disclosed in the 
table provided at account opening.
    The Board notes that in most cases, changes to terms required to be 
disclosed pursuant to Sec.  226.6(b)(1) and (b)(2) will be required to 
be disclosed 45 days in advance in accordance with Sec.  226.9(c)(2). 
However, there are several types of changes to terms required to be 
disclosed under Sec.  226.6(b)(1) and (b)(2) for which advance notice 
is not required under Sec.  226.9(c)(2)(v)(1), including reductions in 
finance and other charges and the extension of a grace period. The 
Board believes that such changes are generally beneficial to the 
consumer, and therefore a 45-day advance notice requirement is not 
appropriate for these changes. However, the Board believes that 
requiring creditors to send consumers subject to such changes a notice 
prior to renewal disclosing key terms of their accounts will promote 
the informed use of credit by consumers. The notice will remind 
consumers of the key terms of their accounts, including any reduced 
rates or extended

[[Page 54152]]

grace periods that apply, when consumers are making a decision as to 
whether to renew their account and how to use the account in the 
future.
    The Board considered an alternative interpretation of amended TILA 
Section 127(d) that would have required that the renewal disclosures be 
provided for all changes in account terms that have not been previously 
disclosed, even changes that are not required to be disclosed pursuant 
to Sec.  226.6(b)(1) and (b)(2). Such an interpretation of the statute 
would require that the renewal disclosures be given even when creditors 
have made relatively minor changes to the account terms, such as by 
increasing the amount of a fee to expedite delivery of a credit card. 
However, the Board believes that providing a renewal notice in these 
circumstances would not provide a meaningful benefit to consumers. 
Amended TILA Section 127(d) requires only that the renewal disclosure 
contain the information set forth in TILA Sections 127(c)(1)(A) and 
(c)(4)(A), which are implemented in Sec.  226.5a(b)(1) through (b)(7). 
These sections require disclosure of key terms of a credit card account 
including the annual percentage rates applicable to the account, annual 
or other periodic membership fees, minimum finance charges, transaction 
charges on purchases, the grace period, balance computation method, and 
disclosure of similar terms for charge card accounts. The Board notes 
that the required disclosures all address terms required to be 
disclosed pursuant to Sec.  226.6(b)(1) and (b)(2). Therefore, if the 
rule required that the renewal disclosures be provided for any change 
in terms, such as a change in a fee for expediting delivery of a credit 
card, the renewal disclosures would not disclose the amount of the 
changed fee. The Board also notes that charges imposed as part of an 
open-end (not home-secured) plan that are not required to be disclosed 
pursuant to Sec.  226.6(b)(1) and (b)(2) are required to be disclosed 
to consumers prior to their imposition pursuant to Sec.  
226.5(b)(1)(ii).
    Proposed Sec.  226.9(e)(1) would further clarify the timing of the 
notice requirement when a card issuer has changed a term on the account 
but does not impose an annual or other periodic fee for renewal, by 
stating that if the card issuer has changed or amended any term 
required to be disclosed under Sec.  226.6(b)(1) and (b)(2) and such 
changed or amended term has not previously been disclosed to the 
consumer, the notice shall be provided at least 30 days prior to the 
scheduled renewal date of the consumer's credit or charge card. 
Accordingly, card issuers that do not charge periodic or other fees for 
renewal of the credit or charge card account, and who have previously 
disclosed any changed terms pursuant to Sec.  226.9(c)(2) are not 
required to provide renewal disclosures pursuant to proposed Sec.  
226.9(e).
9(g) Increase in Rates Due to Delinquency or Default or as a Penalty
9(g)(1) Increases Subject to This Section
    The Board is proposing to adopt Sec.  226.9(g) substantially as 
adopted in the January 2009 Regulation Z Rule, except as required to be 
amended for conformity with the Credit Card Act. Proposed Sec.  
226.9(g), in combination with amendments to Sec.  226.9(c), implements 
the 45-day advance notice requirements for rate increases in new TILA 
Section 127(i). This approach is consistent with the Board's January 
2009 Regulation Z Rule and the July 2009 Regulation Z Interim Final 
Rule, each of which included change-in-terms notice requirements in 
Sec.  226.9(c) and increases in rates due to the consumer's default or 
delinquency or as a penalty for events specified in the account 
agreement in Sec.  226.9(g). The general rule is set forth in proposed 
Sec.  226.9(g)(1) and provides that for open-end plans other than home-
equity plans subject to the requirements of Sec.  226.5b, a creditor 
must provide a written notice to each consumer who may be affected when 
a rate is increased due to a delinquency or default or as a penalty for 
one or more events specified in the account agreement.
9(g)(2) Timing of Written Notice
    Proposed paragraph (g)(2) sets forth the timing requirements for 
the notice described in paragraph (g)(1), and states that the notice 
must be provided at least 45 days prior to the effective date of the 
increase. The notice must, however, be provided after the occurrence of 
the event that gave rise to the rate increase. That is, a creditor must 
provide the notice after the occurrence of the event or events that 
trigger a specific impending rate increase and may not send a general 
notice reminding the consumer of the conditions that may give rise to 
penalty pricing. For example, a creditor may send a consumer a notice 
pursuant to Sec.  226.9(g) if the consumer makes a payment that is one 
day late disclosing a rate increase applicable to new transactions, in 
accordance with Sec.  226.55. However, a more general notice reminding 
a consumer who makes timely payments that paying late may trigger 
imposition of a penalty rate would not be sufficient to meet the 
requirements of Sec.  226.9(g) if the consumer subsequently makes a 
late payment.
9(g)(3) Disclosure Requirements for Rate Increases
    Proposed paragraph (g)(3) sets forth the content and formatting 
requirements for notices provided pursuant to Sec.  226.9(g). Proposed 
Sec.  226.9(g)(3)(i)(A) sets forth the content requirements applicable 
to all open-end (not home-secured) credit plans. Similar to the 
approach discussed above with regard to Sec.  226.9(c)(2)(iv), the 
Board is proposing a separate Sec.  226.9(g)(3)(i)(B) that would 
contain additional content requirements required under the Credit Card 
Act that are applicable only to credit card accounts under an open-end 
(not home-secured) consumer credit plan.
    Proposed Sec.  226.9(g)(3)(i)(A) provides that the notice must 
state that the delinquency, default, or penalty rate has been 
triggered, and the date on which the increased rate will apply. The 
notice also must state the circumstances under which the increased rate 
will cease to apply to the consumer's account or, if applicable, that 
the increased rate will remain in effect for a potentially indefinite 
time period. In addition, the notice must include a statement 
indicating to which balances the delinquency or default rate or penalty 
rate will be applied, and, if applicable, a description of any balances 
to which the current rate will continue to apply as of the effective 
date of the rate increase, unless a consumer fails to make a minimum 
periodic payment within 60 days from the due date for that payment.
    Proposed Sec.  226.9(g)(3)(i)(B) sets forth additional content that 
credit card issuers must disclose if the rate increase is due to the 
consumer's failure to make a minimum periodic payment within 60 days 
from the due date for that payment. In those circumstances, the notice 
must state the reason for the increase and disclose that the increase 
will cease to apply if the creditor receives six consecutive required 
minimum periodic payments on or before the payment due date, beginning 
with the first payment due following the effective date of the 
increase. Proposed Sec.  226.9(g)(3)(i)(B) implements notice 
requirements contained in amended TILA Section 171(b)(4), as adopted by 
the Credit Card Act, and implemented in proposed Sec.  226.55(b)(4), as 
discussed below.
    Unlike Sec.  226.9(g)(3) of the July 2009 Regulation Z Interim 
Final Rule, the notice proposed under Sec.  226.9(g)(3) need not 
disclose the consumer's right to reject the application of the penalty 
rate. For the reasons discussed in the

[[Page 54153]]

supplementary information to Sec.  226.9(h), the Board believes that a 
right to reject penalty rate increases is unnecessary in light of the 
new substantive rule on rate increases in proposed Sec.  226.55. 
Accordingly, for penalty rate increases no disclosure of a right to 
reject need be provided.
    Proposed paragraph (g)(3)(ii) sets forth the formatting 
requirements for a rate increase due to default, delinquency, or as a 
penalty. These requirements are substantively equivalent to the 
formatting rule adopted in Sec.  226.9(g)(3)(ii) of the January 2009 
Regulation Z Rule and would require the disclosures required under 
Sec.  226.9(g)(3)(i) to be set forth in the form of a table. As 
discussed elsewhere in this Federal Register, the formatting 
requirements are not directly compelled by the Credit Card Act, and 
consequently the Board is considering retaining the original July 1, 
2010 effective date of the January 2009 Regulation Z Rule for the 
tabular formatting requirements.
    The Board is proposing to amend Sample G-21 from the January 2009 
Regulation Z Rule (redesignated as Sample G-22) and to add a new sample 
G-23 to illustrate how a card issuer may comply with the requirements 
of proposed Sec.  226.9(g)(3)(i). The Board would amend references to 
these samples in comment 9(g)-8 accordingly. Proposed Sample G-22 is a 
disclosure of a rate increase applicable to a consumer's credit card 
account based on a late payment that is fewer than 60 days late. The 
sample explains when the new rate will apply to new transactions and to 
which balances the current rate will continue to apply. Sample G-23 
discloses a rate increase based on a delinquency of more than 60 days, 
and includes the required content regarding the consumer's ability to 
cure the penalty pricing by making the next six consecutive minimum 
payments on time.
9(g)(4) Exceptions
    Proposed Sec.  226.9(g)(4) sets forth an exception to the advance 
notice requirements of Sec.  226.9(g), which is consistent with an 
analogous exception contained in the January 2009 Regulation Z Rule and 
July 2009 Regulation Z Interim Final Rule. Proposed Sec.  226.9(g)(4) 
clarifies the relationship between the notice requirements in Sec.  
226.9(c)(vi) and (g)(1) when the creditor decreases a consumer's credit 
limit and under the terms of the credit agreement a penalty rate may be 
imposed for extensions of credit that exceed the newly decreased credit 
limit. This exception is substantively equivalent to Sec.  
226.9(g)(4)(ii) of the January 2009 Regulation Z Rule. In addition, it 
is generally equivalent to Sec.  226.9(g)(4)(ii) of the July 2009 
Regulation Z Interim Final Rule, except that the proposal implements 
content requirements analogous to those in proposed Sec.  
226.9(g)(3)(i) that pertain to whether the rate applies to outstanding 
balances or only to new transactions. See 74 FR 5355 for additional 
discussion of this exception.
    As discussed in the supplementary information to Sec.  
226.9(c)(2)(v), a second exception for an increase in an annual 
percentage rate due to the failure of a consumer to comply with a 
workout or temporary hardship arrangement contained in the July 2009 
Regulation Z Interim Final Rule has been moved to Sec.  
226.9(c)(2)(v)(D).
    The Board notes that one respect in which proposed Sec.  
226.9(g)(4) differs from the January 2009 Regulation Z Rule is that it 
does not contain an exception to the 45-day advance notice requirement 
for penalty rate increases if the consumer's account becomes more than 
60 days delinquent prior to the effective date of a rate increase 
applicable to new transactions, for which a notice pursuant to Sec.  
226.9(g) has already been provided. As discussed in the supplementary 
information to proposed Sec.  226.9(g)(3)(i), amended TILA Section 
171(b)(4)(A) requires that specific content be disclosed when a 
consumer's rate is increased based on a failure to make a minimum 
payment within 60 days of the due date for that payment. Specifically, 
TILA Section 171(b)(4)(A) requires the notice to state the reasons for 
the increase and that the increase will terminate no later than six 
months from the effective date of the change, provided that the 
consumer makes the minimum payments on time during that period. The 
Board believes that the intent of this provision is to create a right 
for consumers whose rate is increased based on a payment that is more 
than 60 days late to cure that penalty pricing in order to return to a 
lower interest rate.
    The Board believes that the disclosures associated with this 
ability to cure will be the most useful to consumers if they receive 
them after they have already triggered such penalty pricing based on a 
delinquency of more than 60 days. Under the Board's proposed rule, 
creditors will be required to provide consumers with a notice 
specifically disclosing a rate increase based on a delinquency of more 
than 60 days, at least 45 days prior to the effective date of that 
increase. The notice will state the effective date of the rate 
increase, which will give consumers certainty as to the applicable 6-
month period during which they must make timely payments in order to 
return to the lower rate. If creditors were permitted to raise the rate 
applicable to all of a consumer's balances without providing an 
additional notice, consumers may be unsure exactly when their account 
became more than 60 days delinquent and therefore may not know the 
period in which they need to make timely payments in order to return to 
a lower rate.
    In addition, the Board notes that the Credit Card Act, as 
implemented in proposed Sec.  226.55(b)(4), does not permit a creditor 
to raise the interest rate applicable to a consumer's existing balances 
unless that consumer fails to make a minimum payment within 60 days 
from the due date. This differs from the Board's January 2009 FTC Act 
Rule, which permitted such a rate increase based on a failure to make a 
minimum payment within 30 days from the due date. The exception in 
Sec.  226.9(g)(4)(iii) of the January 2009 Regulation Z Rule reflected 
the Board's understanding that some creditors might impose penalty 
pricing on new transactions based on a payment that is one or several 
days late, and therefore it might be a relatively common occurrence for 
consumers' accounts to become 30 days delinquent within the 45-day 
notice period provided for a rate increase applicable to new 
transactions. The Board believes that, given the 60-day period imposed 
by the Credit Card Act and Sec.  226.55(b)(4), it will be less common 
for consumers' accounts to become delinquent within the original 45-day 
notice period provided for new transactions.
Proposed Changes to Commentary to Sec.  226.9(g)
    The commentary to Sec.  226.9(g) generally is consistent with the 
commentary to Sec.  226.9(g) of the January 2009 Regulation Z Rule, 
except for technical changes. In addition, the Board is proposing to 
amend comment 9(g)-1 to reference examples in Sec.  226.55 that 
illustrate how the advance notice requirements in Sec.  226.9(g) relate 
to the substantive rule regarding rate increases applicable to existing 
balances. Because, as discussed in the supplementary information to 
Sec.  226.55, the Credit Card Act placed the substantive rule regarding 
rate increases into TILA and Regulation Z, the Board believes that it 
is not necessary to repeat the examples under Sec.  226.9.

[[Page 54154]]

9(h) Consumer Rejection of Certain Significant Changes in Terms
    In the July 2009 Regulation Z Interim Final Rule, the Board adopted 
Sec.  226.9(h), which provides that, in certain circumstances, a 
consumer may reject significant changes to account terms and increases 
in annual percentage rates. See 74 FR 36087-36091, 36096, 36099-36101. 
Section 226.9(h) implemented new TILA Section 127(i)(3) and (4), 
which--like the other provisions of the Credit Card Act implemented in 
the July 2009 Regulation Z Interim Final Rule--went into effect on 
August 20, 2009. See Credit Card Act Sec.  101(a) (new TILA Section 
127(i)(3)-(4)). However, several aspects of Sec.  226.9(h) were based 
on revised TILA Section 171, which--like the other statutory provisions 
addressed in this proposed rule--goes into effect on February 22, 2010. 
Accordingly, because the Board is now implementing revised TILA Section 
171 in proposed Sec.  226.55, the Board proposes to modify Sec.  
226.9(h) for clarity and consistency.
Application of Right To Reject to Increases in Annual Percentage Rate
    Because revised TILA Section 171 renders the right to reject 
redundant in the context of rate increases, the Board proposes to amend 
Sec.  226.9(h) to apply that right only to other significant changes to 
an account term. Currently, Sec.  226.9(h) provides that, if a consumer 
rejects an increase in an annual percentage rate prior to the effective 
date stated in the Sec.  226.9(c) or (g) notice, the creditor cannot 
apply the increased rate to transactions that occurred within fourteen 
days after provision of the notice. See Sec.  226.9(h)(2)(i), 
(h)(3)(ii). However, under revised TILA Section 171 (as implemented in 
proposed Sec.  226.55), a creditor is generally prohibited from 
applying an increased rate to transactions that occurred within 
fourteen days after provision of a Sec.  226.9(c) or (g) notice 
regardless of whether the consumer rejects that increase. Similarly, 
although the exceptions in Sec.  226.9(h)(3)(i) and revised TILA 
Section 171(b)(4) permit a creditor to apply an increased rate to an 
existing balance when an account becomes more than 60 days delinquent, 
revised TILA Section 171(b)(4)(B) (as implemented in proposed Sec.  
226.55(b)(4)(ii)) provides that the creditor must terminate the 
increase if the consumer makes the next six payments on or before the 
payment due date. Thus, with respect to rate increases, the right to 
reject does not provide consumers with any meaningful protections 
beyond those provided by revised TILA Section 171. Accordingly, the 
Board believes that, on or after February 22, 2010, the right to reject 
will be unnecessary for rate increases. Indeed, once revised TILA 
Section 171 becomes effective, notifying consumers that they have a 
right to reject a rate increase could be misleading insofar as it could 
imply that a consumer who does so will receive some additional degree 
of protection (such as protection against increases in the rate that 
applies to future transactions).
    Accordingly, the Board proposes to remove references to rate 
increases from Sec.  226.9(h) and its commentary. Similarly, because 
the exception in Sec.  226.9(h)(3)(ii) for transactions that occurred 
more than fourteen days after provision of the notice is based on 
revised TILA Section 171(d),\15\ the Board proposes to remove that 
exception from Sec.  226.9(h) and incorporate it into proposed Sec.  
226.55. Finally, the Board proposes to redesignate comment 9(h)(3)-1 as 
comment 9(h)-1 and amend it to clarify that Sec.  226.9(h) does not 
apply to increases in an annual percentage rate.
---------------------------------------------------------------------------

    \15\ See 74 FR 36089-36090.
---------------------------------------------------------------------------

Repayment Restrictions
    Because the repayment restrictions in Sec.  226.9(h)(2)(iii) are 
based on revised TILA Section 171(c), the Board believes that those 
restrictions should be implemented with the rest of revised Section 171 
in proposed Sec.  226.55. Section 226.9(h)(2)(iii) implemented new TILA 
Section 127(i)(4), which expressly incorporated the repayment methods 
in revised TILA Section 171(c)(2). Because the rest of revised Section 
171 would not be effective until February 22, 2010, the July 2009 
Regulation Z Interim Final Rule implemented new TILA Section 127(i)(4) 
by incorporating the repayment restrictions in Section 171(c)(2) into 
Sec.  226.9(h)(2)(iii). See 74 FR 36089. However, the Board believes 
that--once revised TILA Section 171 becomes effective on February 22, 
2010--these repayment restrictions should be moved to Sec.  226.55(c). 
In addition to being duplicative, implementing revised TILA Section 
171(c)'s repayment methods in both Sec.  228.9(h) and Sec.  226.55(c) 
would create the risk of inconsistency. Furthermore, because these 
restrictions will generally be of greater importance in the context of 
rate increases than other significant changes in terms, the Board 
believes they should be located in proposed Sec.  226.55. Accordingly, 
the Board proposes to move the provisions and commentary regarding 
repayment to proposed Sec.  226.55(c)(2) and to amend Sec.  
226.9(h)(2)(iii) to include a cross-reference to Sec.  226.55(c)(2).
    The Board also proposes to amend comment 9(h)(2)(iii)-1 to clarify 
the application of the repayment methods listed in proposed Sec.  
226.55(c)(2) in the context of a rejection of a significant change in 
terms. As revised, this comment would clarify that, when applying the 
methods listed in Sec.  226.55(c)(2) pursuant to Sec.  
226.9(h)(2)(iii), a creditor may utilize the date on which the creditor 
was notified of the rejection or a later date (such as the date on 
which the change would have gone into effect but for the rejection). 
For example, when a creditor increases an annual percentage rate 
pursuant to Sec.  226.55(b)(3), Sec.  226.55(c)(2)(ii) permits the 
creditor to establish an amortization period for a protected balance of 
not less than five years, beginning no earlier than the effective date 
of the increase. Accordingly, when a consumer rejects a significant 
change in terms pursuant to Sec.  226.9(h)(1), Sec.  226.9(h)(2)(iii) 
permits the creditor to establish an amortization period for the 
balance on the account of not less than five years, beginning no 
earlier than the date on which the creditor was notified of the 
rejection. The comment provides an illustrative example.
    In addition, comment 9(h)(2)(iii)-2 would be revised to clarify the 
meaning of ``the balance on the account'' that is subject to the 
repayment restrictions in proposed Sec.  226.55(c)(2). The revised 
comment would clarify that, when applying the methods listed in Sec.  
226.55(c)(2) pursuant to Sec.  226.9(h)(2)(iii), the provisions in 
Sec.  226.55(c)(2) and the guidance in the commentary to Sec.  
226.55(c)(2) regarding protected balances also apply to a balance on 
the account subject to Sec.  226.9(h)(2)(iii). Furthermore, the revised 
comment would clarify that, if a creditor terminates or suspends credit 
availability based on a consumer's rejection of a significant change in 
terms, the balance on the account for purposes of Sec.  
226.9(h)(2)(iii) is the balance at the end of the day on which credit 
availability was terminated or suspended. However, if a creditor does 
not terminate or suspend credit availability, the balance on the 
account for purposes of Sec.  226.9(h)(2)(iii) is the balance on a date 
that is not earlier than the date on which the creditor was notified of 
the rejection. An example is provided.
Additional Revisions to Commentary
    Consistent with the proposed revisions discussed above, the Board 
proposes to make non-substantive,

[[Page 54155]]

technical amendments to the commentary to Sec.  226.9(h). In addition, 
for organizational reasons, the Board proposes to renumber comments 
9(h)(2)(ii)-1 and -2. Finally, the Board proposes to amend comment 
9(h)(2)(ii)-2 to clarify the application of the prohibition in Sec.  
226.9(h)(2)(ii) on imposing a fee or charge solely as a result of the 
consumer's rejection of a significant change in terms. In particular, 
the revised comment would clarify that, if credit availability is 
terminated or suspended as a result of the consumer's rejection, a 
creditor is prohibited from imposing a periodic fee that was not 
charged before the consumer rejected the change (such as a closed 
account fee).

Section 226.10 Payments

    Section 226.10, which implements TILA Section 164, currently 
contains rules regarding the prompt crediting of payments and is 
entitled ``Prompt crediting of payments.'' 15 U.S.C. 1666c. As is 
discussed further in the section-by-section analysis, the Board is 
proposing to implement several new provisions of the Credit Card Act 
regarding payments in Sec.  226.10, such as requirements regarding the 
permissibility of certain fees to make expedited payments. Several of 
these rules do not pertain directly to the prompt crediting of 
payments, but more generally to the conditions that may be imposed upon 
payments. Accordingly, the Board is proposing to amend the title of 
Sec.  226.10 to ``Payments'' to more accurately reflect the content of 
amended Sec.  226.10.
226.10(b) Specific Requirements for Payments
Cut-Off Times for Payments
    TILA Section 164 states that payments received by the creditor from 
a consumer for an open-end consumer credit plan shall be posted 
promptly to the account as specified in regulations of the Board. The 
Credit Card Act amended TILA Section 164 to state that the Board's 
regulations shall prevent a finance charge from being imposed on any 
consumer if the creditor has received the consumer's payment in readily 
identifiable form, by 5 p.m. on the date on which such payment is due, 
in the amount, manner, and location indicated by the creditor to avoid 
the imposition of such a finance charge. While amended TILA Section 164 
generally mirrors current TILA Section 164, the Credit Card Act added 
the reference to a 5 p.m. cut-off time for payments received on the due 
date.
    TILA Section 164 is implemented in Sec.  226.10. The Board's 
January 2009 Regulation Z Rule addressed cut-off times by providing 
that a creditor may specify reasonable requirements for payments that 
enable most consumers to make conforming payments. Section 
226.10(b)(2)(ii) of the January 2009 Regulation Z Rule stated that a 
creditor may set reasonable cut-off times for payments to be received 
by mail, by electronic means, by telephone, and in person. Amended 
Sec.  226.10(b)(2)(ii) provided a safe harbor for the reasonable cut-
off time requirement, stating that it would be reasonable for a 
creditor to set a cut-off time for payments by mail of 5 p.m. on the 
payment due date at the location specified by the creditor for the 
receipt of such payments. While this safe harbor referred only to 
payments received by mail, the Board noted in the supplementary 
information to the January 2009 Regulation Z Rule that it would 
continue to monitor other methods of payment in order to determine 
whether similar guidance was necessary. See 74 FR 5357.
    As amended by the Credit Card Act, TILA Section 164 differs from 
Sec.  226.10 of the January 2009 Regulation Z Rule in several respects. 
First, amended TILA Section 164 applies the requirement that a creditor 
treat a payment received by 5 p.m. on the due date as timely to all 
forms of payment, not only payments received by mail. In contrast, the 
safe harbor regarding cut-off times that the Board provided in Sec.  
226.10(b)(2)(ii) of the January 2009 Regulation Z Rule directly 
addressed only mailed payments. Second, while the Board's January 2009 
Regulation Z Rule left open the possibility that in some circumstances, 
cut-off times earlier than 5 p.m. might be considered reasonable, 
amended TILA Section 164 prohibits cut-off times earlier than 5 p.m. on 
the due date in all circumstances.
    The Board proposes to implement amended TILA Section 164 in a 
revised Sec.  226.10(b)(2)(ii). Proposed Sec.  226.10(b)(2)(ii) would 
state that a creditor may set reasonable cut-off times for payments to 
be received by mail, by electronic means, by telephone, and in person, 
provided that such cut-off times must be no earlier than 5 p.m. on the 
payment due date at the location specified by the creditor for the 
receipt of such payments. Creditors would be free to set later cut-off 
times; however, no cut-off time would be permitted to be earlier than 5 
p.m. This paragraph, in accordance with amended TILA Section 164, would 
apply to payments received by mail, electronic means, telephone, or in 
person, not only payments received by mail.
    Consistent with the January 2009 Regulation Z Rule, proposed Sec.  
226.10(b)(2)(ii) refers to the time zone of the location specified by 
the creditor for the receipt of payments. The Board believes that this 
clarification is necessary to provide creditors with certainty 
regarding how to comply with the proposed rule, given that consumers 
may reside in different time zones from the creditor. The Board 
believes that a rule requiring a creditor to process payments 
differently based on the time zone at each consumer's billing address 
could impose significant operational burdens on creditors. The Board 
solicits comment on whether this clarification continues to be 
appropriate for payments made by methods other than mail.
    The Board notes that proposed Sec.  226.10(b)(2)(ii) would 
generally apply to payments made in person. However, as discussed 
below, the Credit Card Act amends TILA Section 127(b)(12) to establish 
a special rule for payments on credit card accounts made in person at 
branches of financial institutions, which the Board proposes to 
implement in new Sec.  226.10(b)(3). Notwithstanding the general rule 
in proposed Sec.  226.10(b)(2)(ii), card issuers that are financial 
institutions that accept payments in person at a branch or office may 
not impose a cut-off time earlier than the close of business of that 
office or branch, even if the office or branch closes later than 5 p.m. 
Accordingly, a financial institution that accepts payments at a branch 
or office that closes at 6 p.m. would be required to treat all payments 
received in person at the branch or office prior to 6 p.m. on the due 
date as timely. The Board notes that this rule refers only to payments 
made in person at the branch or office. Payments made by other means 
such as by telephone, electronically, or by mail would be subject to 
the general rule prohibiting cut-off times prior to 5 p.m., regardless 
of when a financial institution's branches or offices close. The Board 
notes that there may be creditors that are not financial institutions 
that accept payments in person, such as at a retail location, and 
believes that it is necessary for proposed Sec.  226.10(b)(2)(ii) to 
refer to payments made in person in order to address cut-off times for 
such creditors that are not also subject to proposed Sec.  
226.10(b)(3).
    The Board notes that the Credit Card Act applies the 5 p.m. cut-off 
time requirement to all open-end credit plans, including open-end 
(home-secured) credit. Accordingly, proposed Sec.  226.10(b)(2)(ii) 
would apply to all

[[Page 54156]]

open-end credit. This is consistent with current Sec.  226.10, which 
applies to all open-end credit.
Payments Made at Financial Institution Branches
    The Credit Card Act amends TILA Section 127(b)(12) to provide that, 
for creditors that are financial institutions which maintain branches 
or offices at which payments on credit card accounts are accepted in 
person, the date on which a consumer makes a payment on the account at 
the branch or office is the date on which the payment is considered to 
have been made for purposes of determining whether a late fee or charge 
may be imposed. 15 U.S.C. 1637(b)(12). The Board is proposing to 
implement the requirements of amended TILA Section 127(b)(12) that 
pertain to payments made at branches or offices of a financial 
institution in new Sec.  226.10(b)(3). Section 226.10(b)(3), as adopted 
in the January 2009 Regulation Z Rule, would accordingly be renumbered 
as Sec.  226.10(b)(4).
    Proposed Sec.  226.10(b)(3)(i) states that a card issuer that is a 
financial institution shall not impose a cut-off time earlier than the 
close of business for payments made in person on a credit card account 
under an open-end (not home-secured) consumer credit plan at any branch 
or office of the card issuer at which such payments are accepted. The 
proposed regulation further states that payments made in person at a 
branch or office of the financial institution during the business hours 
of that branch or office shall be considered received on the date on 
which the consumer makes the payment. Proposed Sec.  226.10(b)(3) 
interprets amended TILA Section 127(b)(12) as requiring card issuers 
that are financial institutions to treat in-person payments they 
receive at branches or offices during business hours as conforming 
payments that must be credited as of the day the consumer makes the in-
person payment. The Board believes that this is the appropriate reading 
of amended TILA Section 127(b)(12) because it is consistent with 
consumer expectations that in-person payments made at a branch of the 
financial institution will be credited on the same day that they are 
made.
    The Board notes that neither the Credit Card Act nor TILA defines 
``financial institution.'' In order to give clarity to card issuers, 
the Board proposes to adopt a definition of ``financial institution,'' 
for purposes of Sec.  226.10(b)(3), in a new Sec.  226.10(b)(3)(ii). 
Proposed Sec.  226.10(b)(3)(ii) would state that ``financial 
institution'' has the same meaning as ``depository institution'' as 
defined in the Federal Deposit Insurance Act (12 U.S.C. 1813(c)). The 
Board believes that this definition effectuates the purposes of amended 
TILA Section 127(b)(12) by including all banks and savings 
associations, while excluding entities such as retailers that should 
not be considered ``financial institutions'' for purposes of proposed 
Sec.  226.10(b)(3). The Board solicits comment on whether an 
alternative definition would be appropriate. In particular, the Board 
solicits comment on whether there are other credit card issuers that 
should be considered ``financial institutions'' for purposes of the 
rule.
    The Board also is proposing a new comment 10(b)-5 to clarify the 
application of proposed Sec.  226.10(b)(3) for payments made at point 
of sale. Proposed comment 10(b)-5 would state that if a creditor that 
is a financial institution issues a credit card that can be used only 
for transactions with a particular merchant or merchants, and a 
consumer is able to make a payment on that credit card account at a 
retail location maintained by such a merchant, that retail location is 
not considered to be a branch or office of the creditor for purposes of 
Sec.  226.10(b)(3). The Board believes that the intent of TILA Section 
127(b)(12) is to apply only to payments made at a branch or office of 
the creditor, not to payments made at a location maintained by a third 
party that is not the creditor. This comment is intended to clarify 
that this rule does not apply when a retailer accepts payments at its 
stores for a co-branded or private label credit card that is issued by 
a separate financial institution.
    Finally, the Board also is proposing a new comment 10(b)-6 to 
clarify what constitutes a payment made ``in person'' at a branch or 
office of a financial institution. Proposed comment 10(b)-6 would state 
that for purposes of Sec.  226.10(b)(3), payments made in person at a 
branch or office of a financial institution include payments made with 
the direct assistance of, or to, a branch or office employee, for 
example a teller at a bank branch. In contrast, the comment would 
provide that a payment made at the bank branch without the direct 
assistance of a branch or office employee, for example a payment placed 
in a branch or office mail slot, is not a payment made in person for 
purposes of Sec.  226.10(b)(3). The Board believes that this is 
consistent with consumer expectations that payments made with the 
assistance of a financial institution employee will be credited 
immediately, while payments that are placed in a mail slot or other 
receptacle at the branch or office may require additional processing 
time.
10(d) Crediting of Payments When Creditor Does Not Receive or Accept 
Payments on Due Date
    The Credit Card Act adopted a new TILA Section 127(o) that 
provides, in part, that if 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). 
New TILA Section 127(o) is similar to Sec.  226.10(d) of the Board's 
January 2009 Regulation Z Rule, with two notable differences. Amended 
Sec.  226.10(d) of the January 2009 Regulation Z Rule stated that if 
the due date for payments is a day on which the creditor does not 
receive or accept payments by mail, the creditor may not treat a 
payment received by mail the next business day as late for any purpose. 
In contrast, new TILA Section 127(o) provides that if the due date is a 
day on which the creditor does not receive or accept payments by mail, 
the creditor may not treat a payment received the next business day as 
late for any purpose. TILA Section 127(o) applies to payments made by 
any method on a due date which is a day on which the creditor does not 
receive or accept mailed payments, and is not limited to payments 
received the next business day by mail. Second, new TILA Section 127(o) 
applies only to credit card accounts under an open-end consumer plan, 
while Sec.  226.10(d) of the January 2009 rule applies to all open-end 
consumer credit.
    The Board is proposing to implement new TILA Section 127(o) in an 
amended Sec.  226.10(d). The general rule in proposed Sec.  226.10(d) 
would track the statutory language of new TILA Section 127(o) to state 
that if the due date for payments is a day on which the creditor does 
not receive or accept payments by mail, the creditor may generally not 
treat a payment received by any method the next business day as late 
for any purpose. The Board is proposing, however, to provide that if 
the creditor accepts or receives payments made by a method other than 
mail, such as electronic or telephone payments, a due date on which the 
creditor does not receive or accept payments by mail, it is not 
required to treat a payment made by that method on the next business 
day as timely. The Board is proposing this clarification using its 
authority under TILA Section 105(a) to make

[[Page 54157]]

adjustments necessary to effectuate the purposes of TILA. 15 U.S.C. 
1604(a).
    The Board believes that it is not the intent of new TILA Section 
127(o) to permit consumers who can make timely payments by methods 
other than mail, such as payments by phone, to have an extra day after 
the due date to make payments using those methods without those 
payments being treated as late. Rather, the Board believes that new 
TILA Section 127(o) was intended to address those limited circumstances 
in which a consumer cannot make a timely payment on the due date, for 
example if it falls on a weekend or holiday and the creditor does not 
accept or receive payments on that date. In those circumstances, 
without the protections of new TILA Section 127(o), the consumer would 
have to make a payment one or more days in advance of the due date in 
order to have that payment treated as timely. The Credit Card Act 
provides other protections designed to ensure that consumers have 
adequate time to make payments, such as amended TILA Section 163, which 
was implemented in Sec.  226.5(b) in the July 2009 Regulation Z Interim 
Final Rule, which generally requires that creditors mail or deliver 
periodic statements to consumers at least 21 days in advance of the due 
date. Therefore, proposed Sec.  226.10(d) would provide that if a 
creditor receives or accepts payments by a method other than mail on 
the due date, the creditor need not treat payments made by that method 
on the next business day as timely, even if the creditor does not 
receive or accept mailed payments on the due date. For example, if a 
creditor receives or accepts electronic payments on a Sunday due date, 
that creditor need not treat as timely an electronic payment made on 
the following Monday, even if it does not receive or accept payments by 
mail on that Sunday due date.
    Finally, the Board is proposing to apply amended Sec.  226.10(d) to 
all open-end consumer credit plans, not just credit card accounts, even 
though new TILA Section 127(o) applies only to credit card accounts. 
The Board believes that it is appropriate to have one consistent rule 
regarding the treatment of payments when the due date falls on a date 
on which the creditor does not receive or accept payments by mail. The 
Board believes that that Regulation Z should treat payments on an open-
end plan that is not a credit card account the same as payments on a 
credit card account. Regardless of the type of open-end plan, if the 
payment due date is a day on which the creditor does not accept or 
receive payments by mail, a consumer should not be required to make 
payments prior to the due date in order for them to be treated as 
timely. This is consistent with Sec.  226.10(d) of the January 2009 
Regulation Z Rule, which set forth one consistent rule for all open-end 
credit.
10(e) Limitations on Fees Related to Method of Payment
    The Credit Card Act adopted new TILA Section 127(l) which generally 
prohibits creditors, in connection with a credit card account under an 
open-end consumer credit plan, from imposing a separate fee to allow a 
consumer to repay an extension of credit or pay a finance charge, 
unless the payment involves an expedited service by a customer service 
representative. 15 U.S.C. 1637(l). The Board is proposing to implement 
TILA Section 127(l) in Sec.  226.10(e). Proposed Sec.  226.10(e) would 
generally track the statutory language of new TILA Section 127(l) and 
would state that, for credit card accounts under an open-end (not home-
secured) consumer credit plan, a creditor may not impose a separate fee 
to allow consumers to make a payment by any method, such as mail, 
electronic, or telephone payments, unless such payment method involves 
an expedited service by a customer service representative of the 
creditor. The text of proposed Sec.  226.10(e) differs from the text of 
TILA Section 127(l), in order to clarify that a separate fee for any 
payment made to an account is prohibited, with the exception of a 
payment involving expedited service by a customer service 
representative. See 15 U.S.C. 1604(a).
    The Board believes that the intent of new TILA Section 127(l) is to 
prohibit the imposition of a separate fee for making any payment, 
unless the payment transaction involves expedited service by a customer 
service representative. Accordingly, the Board notes that proposed 
Sec.  226.10(e) would cover all methods of payment, such as mail, 
electronic, and telephone payments. Under proposed Sec.  226.10(e), 
consistent with TILA Section 127(i), creditors would be permitted to 
charge a separate fee only for those payment transactions that involve 
expedited service by a customer service representative. A creditor, 
however, would not be permitted to charge a separate fee for payment 
transactions that do not involve a customer service representative, 
such as payments sent by mail.
    The Board is proposing several comments to provide guidance to 
creditors in complying with Sec.  226.10(e). Proposed comment 10(e)-1 
would clarify that the term ``separate fee'' means any fee imposed on a 
consumer for making a single payment to the consumer's account. 
Proposed comment 10(e)-1 would clarify, however, that a fees or charge 
imposed if payment is made after the due date, such as a late fee or 
finance charge, is not a ``separate fee to allow consumers to make a 
payment'' for purposes of Sec.  226.10(e).
    The Board also proposes to adopt comment 10(e)-2, which clarifies 
that the term ``expedited'' means crediting a payment to the account 
the same day or, if the payment is received after the creditor's cut-
off time, the next business day.\16\ For example, if a creditor accepts 
a nonconforming payment (such as a payment mailed to a branch office 
when it had specified the payment be sent to a different location) and 
a customer service representative credits the payment to the consumer's 
account the same day, the creditor may impose a separate fee. The Board 
believes that this standard for determining whether service is 
expedited will promote consistent practices among different creditors 
and will provide certainty as to how to comply with proposed Sec.  
226.10(e). In contrast, it would be difficult to apply a standard 
defining expedited service in relation to the time required for a 
payment to post using standard mail service because the length of time 
for delivery by mail for a given consumer or creditor may vary. In 
addition, a standard for determining whether service is expedited based 
on proximity to the due date would not address those circumstances in 
which consumers may want to make an expedited payment to the account in 
advance of the due date, such as in order to increase the amount of 
available credit.
---------------------------------------------------------------------------

    \16\ The Board notes that any cut-off time specified by the 
creditor must comply with proposed Sec.  226.10(b)(2)(ii), discussed 
earlier in the supplementary information. Furthermore, the Board 
notes that the creditor must also comply with Sec.  226.10(a), which 
generally requires a creditor to credit payments to the consumer's 
account as of the date of receipt, except when a delay in crediting 
does not result in a finance or other charge.
---------------------------------------------------------------------------

    Proposed comment 10(e)-3 would clarify that expedited service by a 
live customer service representative of the creditor would be required 
in order for a creditor to charge a separate fee to allow consumers to 
make a payment. Payments made on the account with the assistance of a 
live representative or agent may include payments made in person, on 
the telephone, or by electronic means. The Board understands that 
automated systems, such as a voice response unit or an interactive 
voice response system, are widely used to permit customers to

[[Page 54158]]

make a payment by telephone or other electronic means. The proposed 
comment clarifies that a customer service representative does not 
include automated payment systems because these transactions do not 
involve a live customer service representative.

Section 226.10(f) Changes by Card Issuer

    The Credit Card Act adopted new TILA Section 164(c), which provides 
that a card issuer may not impose any late fee or finance charge for a 
late payment on a credit card account if a card issuer makes ``a 
material change in the mailing address, office, or procedures for 
handling cardholder payments, and such change causes a material delay 
in the crediting of a cardholder payment made during the 60-day period 
following the date on which the change took effect.'' 15 U.S.C. 
1666c(c). The Board proposes to implement new TILA Section 164(c) in 
proposed Sec.  226.10(f).
    The text of proposed Sec.  226.10(f) generally follows the language 
provided in new TILA Section 164(c) with a modification to clarify the 
meaning of ``office.'' With respect to a change in office, the Board 
believes the intent of Section 164(c) is to apply only to changes in 
the address of a branch or office at which payments on a credit card 
account are accepted. See 15 U.S.C. 1604(a). Accordingly, proposed 
Sec.  226.10(f) would prohibit a credit card issuer from imposing any 
late fee or finance charge for a late payment on a credit card account 
if a card issuer makes a material change in the address for receiving 
cardholder payments or procedures for handling cardholder payments, and 
such change causes a material delay in the crediting of a payment made 
during the 60-day period following the date on which the change took 
effect. As an initial matter, the Board notes that proposed Sec.  
226.10(f) would apply only to credit card accounts under an open-end 
(not home-secured) consumer credit plan, consistent with the approach 
the Board has taken with regard to other provisions of the Credit Card 
Act applicable to credit card accounts.
    The Board proposes to adopt comment 10(f)-1 to clarify that 
``address for receiving payment'' means a mailing address for receiving 
payment, such as a post office box, or the address of a branch or 
office at which payments on credit card accounts are accepted.
    The Board is also proposing comment 10(f)-2 to provide guidance to 
creditors in determining whether a change or delay is material. 
Proposed comment 10(f)-2 would clarify that ``material change'' means 
any change in address for receiving payment or procedures for handling 
cardholder payments which causes a material delay in the crediting of a 
payment. Proposed comment 10(f)-2 would further clarify that a 
``material delay'' means any delay in crediting a payment to a 
consumer's account which would result in a late payment and the 
imposition of a late fee or finance charge. The Board understands that 
it may be difficult for a card issuer to ascertain, for any given 
change in the address for receiving payment or procedures for handling 
payments, whether that change did in fact cause a material delay in the 
crediting of a consumer's payment.
    Proposed comment 10(f)-3 would provide card issuers with a safe 
harbor, which the Board believes will give card issuers certainty in 
how to comply with the proposed rule. The Board requests comment on 
other reasonable methods that card issuers may use in complying with 
proposed Sec.  226.10(f). In order to provide additional guidance to 
creditors in complying with this rule, proposed comment 10(f)-4 
provides illustrative examples consistent with proposed Sec.  
226.10(f). For example, assume that a card issuer changes the mailing 
address for receiving payments by mail from one post office box number 
to another post office box number. The card issuer continues to use 
both post office box numbers for the collection of payments received by 
mail. The change in mailing address would not cause a material delay in 
crediting a payment because payments would be received and credited at 
both addresses. Therefore, a card issuer may impose a late fee or 
finance charge for a late payment on the account. Furthermore, for 
example, assume the same facts as above except the prior post office 
box number is no longer valid and mail sent to that address would be 
returned to sender. The change in mailing address is material and the 
change could cause a material delay in the crediting of a payment 
because a payment sent to the old address could be delayed past the due 
date. If, as a result, a consumer makes a late payment on the account 
during the 60-day period following the date on which the change took 
effect, a card issuer may not impose any late fee or finance charge for 
the late payment.
    Proposed comment 10(f)-5 would clarify that when an account is not 
eligible for a grace period, imposing a finance charge due to a 
periodic interest rate does not constitute imposition of a finance 
charge for a late payment for the purposes of Sec.  226.10(f). 
Notwithstanding the proposed rule, a card issuer may impose a finance 
charge due to a periodic interest rate in those circumstances.

Section 226.11 Treatment of Credit Balances; Account Termination

11(c) Timely Settlement of Estate Debts
    New TILA Section 140A requires that the Board, in consultation with 
the Federal Trade Commission and each other agency referred to in Sec.  
108(a) of TILA, prescribe regulations requiring creditors, with respect 
to credit card accounts under an open-end consumer credit plan, to 
establish procedures to ensure that any administrator of an estate can 
resolve the outstanding credit balance of a deceased accountholder in a 
timely manner. 15 U.S.C. 1651. The Board proposes to implement TILA 
Section 140A in new Sec.  226.11(c). In developing this proposal, the 
Board consulted with the Federal Trade Commission and the agencies 
referred to in Sec.  108(a) of TILA. Proposed Sec.  226.11(c)(1) 
requires creditors to adopt reasonable procedures designed to ensure 
that any administrator or executor of an estate of a deceased 
accountholder can determine the amount of and pay any balance on the 
decedent's credit card account in a timely manner. Proposed Sec.  
226.11(c) would apply only to credit card accounts under an open-end 
(not home-secured) consumer credit plan, consistent with the approach 
the Board has taken with regard to other provisions of the Credit Card 
Act applicable to credit card accounts.
    Proposed Sec.  226.11(c) generally follows the language in TILA 
Section 140A with some modification. For clarity, the Board proposes to 
interpret the term ``resolve'' for purposes of Sec.  226.11(c) to mean 
determine the amount of and pay any balance on a deceased consumer's 
account. In addition, in order to ensure that the rule applies 
consistently to any personal representative of an estate who has the 
duty to settle any estate debt, the Board proposes to include 
``executor'' in proposed Sec.  226.11(c). The Board notes that the 
duties and responsibilities of administrators and executors are 
generally the same; however, it is the Board's understanding that 
administrators are distinct from executors in the manner in which they 
are appointed. Specifically, an executor is designated by the 
decedent's will while an administrator is typically appointed by a 
court in accordance with State law. The Board believes that TILA 
Section 140A is intended to apply to any deceased accountholder's 
estate, regardless of whether an administrator or executor is 
responsible for the estate.

[[Page 54159]]

    In addition, the Board is proposing to require creditors to adopt 
``reasonable procedures designed to ensure'' that administrators or 
executors can determine the amount of and pay any balance in a timely 
manner. The Board recognizes that some creditors may already have 
established procedures for the resolution of a deceased accountholder's 
balance. Thus, a ``reasonable procedures'' standard would permit 
creditors to retain, to the extent appropriate, procedures which may 
already be in place, in complying with proposed Sec.  226.11(c), as 
well as applicable State and Federal laws governing probate. Proposed 
comment 11(c)-1 provides examples of reasonable procedures consistent 
with proposed Sec.  226.11(c).
    In addition to the general rule, the Board is proposing Sec.  
226.11(c)(2)(i), which would prohibit creditors from imposing fees and 
charges on a deceased consumer's account upon receiving a request for 
the amount of any balance from an administrator or executor of an 
estate. The intent of new TILA Section 140A is to ensure the timely 
settlement of a deceased accountholder's credit card balance. The Board 
understands that establishing and administering an estate may be a 
complex, time-consuming process, which is subject to various State law 
requirements and can involve a probate court. Furthermore, the Board 
understands that some administrators and executors currently may be 
unable to obtain the amount of a deceased accountholder's balance in a 
timely manner, which in turn, delays the settlement of estate debts. If 
balances cannot be obtained and settled in a timely manner, fees and 
other charges, such as a late fee or finance charge, may continue to 
accrue on the account balance. Under these circumstances, the Board 
believes that the estate and its assets may be disadvantaged if fees 
and charges continue to accrue on the account. Accordingly, proposed 
Sec.  226.11(c)(2)(i) would prohibit a creditor from imposing fees and 
charges on the deceased consumer's account upon receiving a request for 
the amount of the balance on the account from an administrator or 
executor of an estate. The Board believes that this prohibition is 
necessary to provide certainty for all parties as to the balance amount 
and to ensure the timely settlement of estate debts. Proposed comment 
11(c)-2 would clarify that a creditor may impose finance charges based 
on balances for days that precede the date on which the creditor 
receives a request pursuant to proposed Sec.  226.11(c)(3). The Board 
solicits comment on whether a creditor should be permitted to resume 
the imposition of fees and charges if the administrator or executor of 
an estate has not paid the account balance within a specified period of 
time.
    Proposed Sec.  226.11(c)(2)(ii) would provide that a creditor may 
impose fees and charges on a deceased consumer's account if a joint 
accountholder remains on the account. For joint accounts, a joint 
accountholder remains liable for the account. In contrast, because an 
authorized user is not liable for the account, proposed Sec.  
226.11(c)(2)(ii) would not extend to such users. Accordingly, a 
creditor may not impose fees and charges on the account if only an 
authorized user remains on the account. Proposed comment 11(c)-3 would 
clarify that a creditor may impose fees and charges on a deceased 
consumer's account if a joint accountholder remains on the account. The 
proposed comment would further clarify that a creditor may not impose 
fees and charges on a deceased consumer's account if an authorized user 
remains on the account.
    The Board is also proposing comment 11(c)-4 to clarify that a 
creditor may receive a request for the amount of the balance on the 
account in writing or by telephone call from the administrator or 
executor of an estate. If a request is made in writing, such as by 
mail, the request is received when the creditor receives the 
correspondence.
    Under proposed Sec.  226.11(c)(3)(i), a creditor would be required 
to disclose the amount of the balance on the account in a timely 
manner, upon request by the administrator or executor of the estate. 
The Board believes a timely statement reflecting the deceased 
accountholder's balance is necessary to assist administrators and 
executors with the settlement of estate debts. Proposed comment 11(c)-5 
provides guidance to creditors in complying with Sec.  226.11(c)(3). 
Creditors may provide the amount of the balance, if any, by a written 
statement or by telephone. Proposed comment 11(c)-5 also clarifies that 
proposed Sec.  226.11(c)(3) would not preclude a creditor from 
providing the balance amount to appropriate persons, other than the 
administrator or executor of an estate. For example, the Board notes 
that the proposed rule would not preclude creditors, subject to 
applicable Federal and State laws, from providing a spouse or family 
members who indicate that they will pay the decedent's debts from 
obtaining a balance amount for that purpose.
    Proposed Sec.  226.11(c)(3)(ii) provides creditors with a safe 
harbor for disclosing the balance amount in a timely manner, stating 
that it would be reasonable for a creditor to provide the balance on 
the account within 30 days of receiving a request by the administrator 
or executor of an estate. The Board believes that 30 days is reasonable 
to ensure that transactions and charges have been accounted for and 
calculated and to provide a written statement or confirmation. The 
Board seeks comment as to whether 30 days provides creditors with 
sufficient time to provide a statement of the balance on the deceased 
consumer's account.

Section 226.16 Advertising

16(f) Misleading Terms
    See the supplementary information to Sec.  226.5(a)(2)(iii) for a 
discussion of the Board's proposals regarding use of the term ``fixed'' 
in advertisements for open-end plans set forth in proposed Sec.  
226.16(f).
16(h) Deferred Interest or Similar Offers
    In May 2009, the Board proposed to use its authority under TILA 
Section 143(3) to implement new advertising requirements related to 
deferred interest or similar offers for open-end (not home-secured) 
credit plans. 15 U.S.C. 1663(3). These requirements, which the Board 
proposed to implement in a new Sec.  226.16(h), were similar to those 
originally proposed by the Board in May 2009. See 73 FR 28866, 28884-
28886. The Board continues to believe that these requirements would 
better inform consumers of the terms of deferred interest or similar 
offers and that these advertising requirements will complement the 
proposed periodic statement disclosures for such programs that are 
discussed in the supplementary information to Sec.  226.7(b). 
Therefore, the Board is republishing these same requirements for 
additional comment in this Federal Register notice.
    Specifically, these disclosure requirements would apply to 
advertisements that use terms such as ``no interest,'' ``no payments,'' 
``deferred interest,'' ``same as cash,'' or similar terms in describing 
these offers.\17\ Proposed Sec.  226.16(h)(1) would limit these 
requirements to advertisements of open-end (not home-secured) credit, 
and proposed Sec.  226.16(h)(2) would define terms applicable to the 
section. 74 FR 20793-20794. Proposed Sec.  226.16(h)(3) would require 
that the deferred interest period be disclosed in immediate proximity 
to each deferred interest triggering term. Also, under

[[Page 54160]]

proposed Sec.  226.16(h)(3), for advertisements stating ``no interest'' 
or a similar term, the fact that the balance must be paid in full by 
the end of the deferred interest period also would need to be disclosed 
in immediate proximity to that term. 74 FR 20794. Proposed Sec.  
226.16(h)(4) also would require that certain additional information 
about the terms of the deferred interest or similar offer be disclosed 
in close proximity to the first statement of a deferred interest 
triggering term. 74 FR 20794. To facilitate compliance with this 
provision, the Board proposed model language in Sample G-22 in Appendix 
G. 74 FR 20797. Sample G-22 from the May 2009 Regulation Z Proposed 
Clarifications has been renumbered as Sample G-24 in this proposal. 
Proposed Sec.  226.16(h)(4) would require that advertisements of 
deferred interest or similar offers use language similar to Sample G-
24. Finally, under proposed Sec.  226.16(h)(5), most of these 
requirements would not apply to envelopes or other enclosures in which 
an application or solicitation is mailed, or banner advertisements or 
pop-up advertisements linked to an electronic application or 
solicitation, bearing the triggering terms. 74 FR 20794.
---------------------------------------------------------------------------

    \17\ For ease of reference, the supplementary information to 
proposed Sec.  226.16(h) refers generically to these terms as 
``deferred interest triggering terms.''
---------------------------------------------------------------------------

    In addition, the Board proposed new commentary to provide further 
guidance on the requirements under proposed Sec.  226.16(h), and also 
proposed to amend comments 16-1 and 16-2 to clarify the clear and 
conspicuous requirements for these disclosures. 74 FR 20800. Proposed 
comment 16(h)-1 provided further clarification on what types of offers 
were included as deferred interest or similar offers, while proposed 
comment 16(h)-2 further clarified the meaning of ``deferred or waived 
interest period.'' \18\ 74 FR 20800. Similar to guidance adopted in the 
January 2009 Regulation Z Rule for advertisements of promotional rates 
under Sec.  226.16(g), the Board proposed comment 16(h)-3 to further 
clarify the meaning of ``immediate proximity,'' comment 16(h)-4 to 
further clarify the meaning of ``prominent location closely 
proximate,'' and comment 16(h)-5 to further clarify the meaning of 
``first listing.'' 74 FR 20800. The Board also proposed comment 16(h)-6 
to clarify that the information required under proposed Sec.  
226.16(h)(4) need not be segregated from other information the 
advertisement discloses about the deferred interest or similar offer. 
74 FR 20800. Finally, proposed comment 16(h)-7 provided examples of 
phrases that could be used to comply with proposed 226.16(h)(3). 74 FR 
20801.
---------------------------------------------------------------------------

    \18\ While the May 2009 Regulation Z Proposed Clarifications 
referred to a ``deferred or waived interest'' offer, this proposal 
refers to such promotional programs more generally as deferred 
interest or similar offers.
---------------------------------------------------------------------------

Section 226.51 Ability To Pay

51(a) General Ability To Pay
    Section 109 of the Credit Card Act adds new TILA Section 150 
prohibiting a card issuer from opening a credit card account for a 
consumer, or increasing the credit limit applicable to a credit card 
account, unless the card issuer considers the consumer's ability to 
make the required payments under the terms of such account. 15 U.S.C. 
1665e. The Board proposes to implement TILA Section 150 in Sec.  
226.51(a).
    Proposed Sec.  226.51(a)(1) generally follows the language provided 
in TILA Section 150 with two modifications. First, because the minimum 
payment is the amount that a consumer is required to pay each billing 
cycle under the terms of the contract with the card issuer, the Board 
proposes to interpret the term ``required payments'' to mean the 
required minimum periodic payment.
    Second, the Board believes an evaluation of a consumer's current 
ability to pay must include a review of the consumer's income or assets 
as well as the consumer's current obligations. Therefore, proposed 
Sec.  226.51(a)(1) would provide that the card issuer's consideration 
of the ability of the consumer to make the required minimum periodic 
payments must be based on the consumer's income or assets and the 
consumer's current obligations. Proposed Sec.  226.51(a)(1) would also 
require that card issuers have reasonable policies and procedures in 
place to consider this information. A card issuer has not complied with 
this provision if, for example, a card issuer does not review any 
information about a consumer's income, assets, or current obligations, 
or issues a credit card to a consumer who does not have any income or 
assets. In addition, the Board believes that other factors may be 
useful for card issuers to evaluate a consumer's ability to pay. 
Accordingly, proposed comment 51(a)-1 would clarify that card issuers 
may also consider credit reports or credit scores, and any other 
factors that are consistent with the Board's Regulation B (12 CFR Part 
202).
    Because the minimum payments a consumer is required to pay each 
billing cycle may vary depending on the amount of the balance as well 
as the finance and other charges a consumer incurs during the billing 
cycle, card issuers would be required to estimate the minimum payments 
a consumer might be obligated to pay before the account is opened or 
the credit line is increased. Proposed Sec.  226.51(a)(2)(i) would 
require card issuers to use a reasonable method for estimating the 
required minimum periodic payments, and proposed Sec.  226.51(a)(2)(ii) 
would provide a safe harbor that card issuers could use to comply with 
this requirement. Specifically, the safe harbor requires the card 
issuer to assume utilization of the full credit line that the issuer is 
considering offering to the consumer from the first day of the billing 
cycle. The safe harbor also requires the issuer to use a minimum 
payment formula employed by the issuer for the product the issuer is 
considering offering to the consumer or, in the case of an existing 
account, the minimum payment formula that currently applies to that 
account. For example, in evaluating an application to open a new 
account, if the minimum payment formula used by the card issuer for the 
product is 2% of the outstanding balance, the estimated required 
minimum periodic payment for a $10,000 credit line would be $200 under 
the safe harbor.
    However, if the applicable minimum payment formula includes 
interest charges, the safe harbor requires the card issuer to estimate 
those charges using an interest rate that the issuer is considering 
offering to the consumer for purchases or, in the case of an existing 
account, the interest rate that currently applies to purchases. For 
example, if the minimum payment formula that applies to an existing 
consumer's account is 3% plus interest and fees, the current purchase 
rate for the account is 10%, and the card issuer is considering 
increasing the consumer's credit line to $10,000, the estimated 
required minimum periodic payment would be approximately $380 under the 
safe harbor. Finally, if the applicable minimum payment formula 
includes fees, the card issuer may assume that no fees have been 
charged to the account.
    In developing the proposed safe harbor, the Board considered a 
number of different approaches. The Board recognizes that consumers 
generally do not use the full credit line, and consequently, the 
Board's proposed safe harbor approach could have the effect of 
overstating the consumer's likely required payments. The Board, 
however, believes that since card issuers are qualifying consumers for 
a certain credit line, of which consumers presumably have full use, 
card issuers should be expected to underwrite based on required 
payments on the full amount under the safe harbor. Furthermore, 
although estimating a

[[Page 54161]]

consumer's required minimum periodic payments may be more accurate with 
the addition of some estimated fees when using a minimum payment 
formula that includes the interest and fees, the Board believes that 
estimating the amount of fees that a typical consumer might incur could 
be speculative. As a result the Board's proposed safe harbor does not 
require issuers to estimate fees. The Board seeks comment on other 
reasonable methods that card issuers may use in estimating minimum 
payments.
    Proposed comment 51(a)-2 would clarify that in considering a 
consumer's ability to pay, a card issuer must base the consideration on 
facts and circumstances known to the card issuer at the time the 
consumer applies to open the credit card account or when the card 
issuer considers increasing the credit line on an existing account. 
This guidance is similar to comment 34(a)(4)-5 addressing a creditor's 
requirement to consider a consumer's repayment ability for certain 
closed-end mortgage loans based on facts and circumstances known to the 
creditor at loan consummation. Furthermore, since credit line increases 
can occur at the request of a consumer or through a unilateral decision 
by the card issuer, proposed comment 51(a)-3 would clarify that Sec.  
226.51(a) applies in both situations.
    Proposed comment 51(a)-4 would provide examples of assets and 
income the card issuer may consider in evaluating a consumer's ability 
to pay. The comment would provide similar guidance to comment 34(a)(4)-
6 regarding the requirement for creditors to consider a consumer's 
repayment ability with respect to certain closed-end mortgage loans. 
The Board also proposes comment 51(a)-5 to clarify that in considering 
a consumer's current obligations, a card issuer may rely on information 
provided by the consumer or in a consumer's credit report.
    Finally, for several reasons, the proposal does not require that 
card issuers verify information before the account is opened or the 
credit line is increased. First, TILA Section 150 does not require 
verification of a consumer's ability to make required payments. Second, 
verification can be burdensome for both consumers and card issuers, 
especially when accounts are opened at point of sale or by telephone. 
For example, because consumers generally do not have documentation 
readily available to verify their income, assets, or obligations at 
point of sale, a verification requirement would restrict consumers' 
ability to open a new credit card account at point of sale. As a 
result, the Board believes that card issuers need flexibility to 
determine instances when they need to verify information. Furthermore, 
since these accounts are generally unsecured, the Board believes that 
card issuers have reasons to verify the information when either the 
information supplied by the applicant is inconsistent with the data the 
card issuers already have or are able to gather on the consumer or when 
the risk in the amount of the credit line warrants such verification. 
While the Board has required creditors to verify information before 
credit is extended for certain mortgage loans, the Board's decision 
with respect to such loans was based on evidence that borrower income 
was inflated for these types of mortgage loans and that lending 
decisions based on overstated incomes contributed to the recent 
substantial increase in mortgage delinquencies. In contrast, the Board 
does not have evidence that this is the case in the credit card market. 
As a result, the Board believes a verification requirement before a 
credit card account is opened or credit line increased would not be 
necessary and could burden consumers. The Board, however, seeks comment 
on whether there is evidence that warrants a requirement to verify 
information before a credit card account is opened or a credit line is 
increased.
51(b) Rules Affecting Young Consumers
    Currently, card issuers may grant credit to young consumers on the 
assumption that a parent or guardian of the consumer will pay the debt, 
even if the issuer does not obtain the express agreement of such parent 
or guardian to assume liability. Sections 301 and 303 of the Credit 
Card Act are meant to address this situation. Under new Section 
127(c)(8)(A) of TILA, as adopted by Section 301 of the Credit Card Act, 
no credit card may be issued to, or open-end consumer credit plan 
established by, or on behalf of a consumer, who has not attained the 
age of 21 unless the consumer has submitted a written application to 
the card issuer that meets certain requirements. 15 U.S.C. 
1637(c)(8)(A). New TILA Section 127(c)(8)(B) further provides that an 
application to open a credit card account by a consumer who has not 
attained the age of 21 as of the date of submission of the application 
shall require either: (1) The signature of a cosigner who has attained 
the age of 21 having a means to repay debts incurred by the consumer in 
connection with the account, indicating joint liability for debts 
incurred by the consumer in connection with the account before the 
consumer has attained the age of 21; or (2) the submission by the 
consumer of financial information, including through an application, 
indicating an independent means of repaying any obligation arising from 
the proposed extension of credit in connection with the account. 15 
U.S.C. 1637(c)(8)(B).
    Section 303 of the Credit Card Act adds new TILA Section 127(p). 15 
U.S.C. 1637(p). TILA Section 127(p) states that no increase may be made 
in the amount of credit authorized to be extended under a credit card 
account for which an individual has assumed joint liability for debts 
incurred by the consumer in connection with the account before the 
consumer attains the age of 21, unless that individual approves in 
writing, and assumes joint liability for, such increase.
    The Board proposes to implement these provisions in proposed Sec.  
226.51(b) and associated commentary. Proposed Sec.  226.51(b)(1) would 
provide that a card issuer may not open a credit card account under an 
open-end (not home-secured) consumer credit plan for a consumer less 
than 21 years old, unless the consumer submits a written application 
and provides either a signed agreement of a cosigner, guarantor, or 
joint applicant pursuant to Sec.  226.51(b)(1)(i) or financial 
information consistent with Sec.  226.51(b)(1)(ii), as further 
discussed below. The language in Sec.  226.51(b)(1) has been modified 
from the statutory language in TILA Section 127(c)(8)(A) for 
consistency with Sec.  226.51(a) and to clarify that the provision 
applies only to credit card accounts and only in connection with the 
opening of the account. Furthermore, the language has been modified to 
improve readability.
    Although the text of TILA Section 127(c)(8)(A) references open-end 
consumer credit plans other than credit cards, the Board believes that 
the intent of the provision, read as a whole, is to apply only to 
credit card accounts. While the provision references other open-end 
consumer credit plans, the requirements under the provision apply only 
to ``card issuers.'' Based on the fact that the requirements of the 
provision are limited to card issuers as well as language in other 
related sections of the Credit Card Act and the location of the 
provision in TILA, the Board believes that the restrictions in TILA 
Section 127(c)(8)(A) are meant to apply only to credit card accounts.
    First, TILA Section 127(c)(8)(B), which discusses the requirements 
for an application submitted by a consumer who has not attained the age 
of 21, refers solely to an application to open a credit card account. 
Second, TILA

[[Page 54162]]

Section 127(p), which restricts credit line increases for accounts in 
which an individual assumes joint liability for debts incurred by the 
consumer in connection with the account before the consumer attains the 
age of 21, refers only to a credit card account. Third, these 
provisions have been placed in TILA Section 127(c), a section that 
deals exclusively with credit card accounts. Therefore, the Board 
believes it is appropriate to apply proposed Sec.  226.51(b)(1) only to 
credit card accounts.
    Furthermore, proposed Sec.  226.51(b)(1) refers to the opening of a 
credit card account, which differs from the statute's reference to the 
issuance of a credit card. The ``issuance'' of a credit card can refer 
to a card sent to the consumer as a replacement card or upon renewal of 
the card. See Sec.  226.12(a). As a result, the Board believes that 
limiting the scope of Sec.  226.51(b) to the opening of a credit card 
account is appropriate. Otherwise, the provision could be construed to 
require card issuers to evaluate a cardholder's ability or obtain the 
signature of a cosigner even when a card is being sent to an existing 
cardholder to replace an expired card. The Board notes that the renewal 
of an existing account or change in the terms of an existing account 
generally does not constitute the opening of an account for purposes of 
Regulation Z.
    The Board proposes to implement the specific application 
requirements detailed in TILA Section 127(c)(8)(B) in Sec.  
226.51(b)(1)(i) and (ii). Proposed Sec.  226.51(b)(1)(i) and (ii) 
generally follow the language in TILA Section 127(c)(8)(B) with some 
changes. While most of these modifications are minor and are meant to 
improve the readability of the regulation without any substantive 
change in meaning, the Board also proposes to clarify the meaning of 
cosigner and joint liability.
    The terms cosigner and joint liability can have several meanings. 
For example, a cosigner can refer to a guarantor who has no credit 
privileges on the account but is secondarily liable for a consumer's 
debt if the consumer defaults. A cosigner can also mean a joint 
accountholder who shares credit privileges with the consumer on the 
account and is jointly liable on the debt incurred by either the 
consumer or the joint accountholder. The Board believes it is 
appropriate to modify the language used in the regulation from the 
statutory language to make clear that all types of cosigners and joint 
liability arrangements would be included. Accordingly, proposed Sec.  
226.51(b)(1)(i) states that a consumer who is less than 21 years old 
can provide the signed agreement of a cosigner, guarantor, or joint 
applicant who is at least 21 years old to be either secondarily liable 
for any debt on the account incurred by the consumer before the 
consumer has attained the age of 21 in the event the consumer defaults 
on the account or jointly liable with the consumer for any debt on the 
account incurred by either party.
    Furthermore, to maintain consistency, the Board proposes to 
interpret the phrase ``means to repay'' or ``means of repaying'' as 
equivalent to evaluating a consumer's ability to make the required 
payments under TILA Section 150, which the Board proposes to implement 
in Sec.  226.51(a), as discussed above. Therefore, Sec.  
226.51(b)(1)(i) and (ii) both reference Sec.  226.51(a) in discussing 
the ability of a cosigner, guarantor, or joint applicant to make the 
minimum payments on the consumer's debts and the consumer's independent 
ability to make the minimum payments on any obligations arising under 
the account.
    Proposed Sec.  226.51(b)(2) generally follows the language in TILA 
Section 127(p), though the Board has modified some of the wording used 
in the statute. These changes are meant to improve readability without 
any substantive change in meaning. For example, TILA Section 127(p) 
states that a parent, guardian, or spouse must approve the credit line 
increase in writing; however, the statute also concedes that an 
individual who is not a parent, guardian, or spouse may have assumed 
liability for debts incurred by the consumer. In those cases, that 
individual should be the one to approve the credit line increase, and 
assume liability for that increased amount. Therefore, proposed Sec.  
226.51(b)(2) eliminates the reference to parent, guardian, or spouse to 
apply the provision more generally to cosigners, guarantors, or joint 
accountholders.
    The Board also proposes several comments to provide guidance to 
card issuers in complying with Sec.  226.51(b). Proposed comment 51(b)-
1 would clarify that Sec.  226.51(b)(1) and (b)(2) apply only to a 
consumer who has not attained the age of 21 as of the date of 
submission of the application under Sec.  226.51(b)(1) or the date the 
credit line increase is requested by the consumer under Sec.  
226.51(b)(2). If no request has been made (for example, for unilateral 
credit line increases by the card issuer), the provision would apply 
only to a consumer who has not attained the age of 21 as of the date 
the credit line increase is considered by the card issuer.
    Proposed comment 51(b)-2 would address the ability of a card issuer 
to require a cosigner, guarantor, or joint accountholder to assume 
liability for debts incurred after the consumer has attained the age of 
21. While Sec.  226.51(b)(1)(i) and (b)(2) require, at a minimum, that 
a cosigner, guarantor, or joint accountholder assume liability for any 
debt on the account incurred by the consumer before the consumer has 
attained the age of 21, proposed comment 51(b)-2 would clarify that 
Sec.  226.51(b)(1)(i) and (b)(2) do not restrict a card issuer from 
extending this liability to debt incurred by the consumer after the 
consumer has attained the age of 21, at the card issuer's option, 
consistent with any agreement made between the parties.
    The Board proposes comment 51(b)-3 to clarify that Sec.  
226.51(b)(1) and (b)(2) do not apply to a consumer under the age of 21 
who is being added to another person's account as an authorized user 
and has no liability for debts incurred on the account. The Board 
believes that the protections under TILA Sections 127(c)(8) and 127(p) 
would not be necessary if the consumer under the age of 21 is not 
assuming any liability, and would therefore not be legally obligated to 
make any payments on the account.
    Proposed comment 51(b)-4 would provide card issuers with guidance 
concerning electronic applications and explain how the Electronic 
Signatures in Global and National Commerce Act (E-Sign Act) (15 U.S.C. 
7001 et seq.) would govern the submission of such an application. TILA 
Section 127(c)(8) requires a consumer who has not attained the age of 
21 to submit a written application. In addition, under TILA Section 
127(p), a cosigner, guarantor, or joint accountholder must approve a 
credit line increase in writing. However, in accordance with the 
purposes of the E-Sign Act, contracts and other records cannot be 
denied legal effect, validity or enforceability solely because they are 
in electronic form. See 15 U.S.C. 7001(a). Therefore, the Board 
believes that, consistent with the purposes of the E-Sign Act, 
applications submitted under TILA Section 127(c)(8) and approvals under 
TILA Section 127(p), which must be provided in writing, may also be 
submitted electronically. Moreover, the E-Sign Act requires that before 
any disclosure that is required to be in writing is provided to a 
consumer electronically, the consumer must affirmatively consent to the 
provision of the information electronically, among other things. Since 
the submission of an application or approval by a consumer, cosigner, 
guarantor, or joint accountholder is not a disclosure to a consumer, 
the consumer consent and other

[[Page 54163]]

requirements necessary to provide consumer disclosures electronically 
pursuant to the E-Sign Act would not apply. Furthermore, Sec.  
226.5(a)(1)(iii), which was adopted in the January 2009 Regulation Z 
Rule, provides that an application may be provided to a consumer in 
electronic form without regard to the consumer consent or other 
provisions of the E-Sign Act in the circumstances set forth in Sec.  
226.5a.
    Proposed comment 51(b)(1)-1 explains that when evaluating an 
application to open a credit card account or credit line increase for a 
consumer under the age of 21, creditors must comply with applicable 
rules in Regulation B (12 CFR Part 202). Given that age is generally a 
prohibited basis for any creditor to take into account in any system 
evaluating the creditworthiness of applicants under Regulation B, the 
Board believes that Regulation B prohibits card issuers from refusing 
to consider the application of a consumer solely because the applicant 
has not attained the age of 21 (assuming the consumer has the legal 
ability to enter into a contract). Furthermore, because TILA Section 
127(c)(8) permits card issuers to open a credit card account for a 
consumer who has not attained the age of 21 if either of the conditions 
under TILA Section 127(c)(8)(B) are met, the Board believes that a card 
issuer may choose to evaluate an application of a consumer who is less 
than 21 years old solely on the basis of the information provided under 
Sec.  226.51(b)(1)(ii). Therefore, the Board believes, a card issuer is 
not required to accept an application from a consumer less than 21 
years old with the signature of a cosigner, guarantor, or joint 
applicant pursuant to Sec.  226.51(b)(1)(i), unless refusing such 
applications would violate Regulation B. For example, if the card 
issuer permits other applicants of non-business credit card accounts 
who have attained the age of 21 to provide the signature of a cosigner, 
guarantor, or joint applicant, the card issuer must provide this option 
to applicants of non-business credit card accounts who have not 
attained the age of 21 (assuming the consumer has the legal ability to 
enter into a contract).
    Proposed comment 51(b)(2)-1 would provide that the requirement 
under Sec.  226.51(b)(2) that a cosigner, guarantor, or joint 
accountholder for a credit card account opened pursuant to Sec.  
226.51(b)(1)(ii) must agree in writing to assume liability for a credit 
line increase does not apply if the cosigner, guarantor or joint 
accountholder who is at least 21 years old requests the increase. 
Because the party that must approve the increase is the one that is 
requesting the increase in this situation, the Board believes that 
Sec.  226.51(b)(2) would be redundant.

Section 226.52 Limitations on Fees

52(a) Limitations During First Year After Account Opening
    New TILA Section 127(n)(1) applies ``[i]f the terms of a credit 
card account under an open end consumer credit plan require the payment 
of any fees (other than any late fee, over-the-limit fee, or fee for a 
payment returned for insufficient funds) by the consumer in the first 
year during which the account is opened in an aggregate amount in 
excess of 25 percent of the total amount of credit authorized under the 
account when the account is opened.'' 15 U.S.C. 1637(n)(1). If the 25 
percent threshold is met, then ``no payment of any fees (other than any 
late fee, over-the-limit fee, or fee for a payment returned for 
insufficient funds) may be made from the credit made available under 
the terms of the account.'' However, new TILA Section 127(n)(2) 
provides that Section 127(n) may not be construed as authorizing any 
imposition or payment of advance fees prohibited by any other provision 
of law. The Board is proposing to implement new TILA Section 127(n) in 
Sec.  226.52(a).\19\
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    \19\ In a subsequent rulemaking, the Board intends to implement 
new TILA Section 149 in Sec.  226.52(b). New TILA Section 149, which 
is effective August 22, 2010, requires that credit card penalty fees 
and charges be reasonable and proportional to the consumer's 
violation of the cardholder agreement.
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    Subprime credit cards often charge substantial fees at account 
opening and during the first year after the account is opened. For 
example, these cards may impose multiple one-time fees when the 
consumer opens the account (such as an application fee, a program fee, 
and an annual fee) as well as a monthly maintenance fee, fees for using 
the account for certain types of transactions, and fees for increasing 
the credit limit. The account-opening fees are often billed to the 
consumer on the first periodic statement, substantially reducing from 
the outset the amount of credit that the consumer has available to make 
purchases or other transactions on the account. For example, some 
subprime credit card issuers assess $250 in fees at account opening on 
accounts with credit limits of $300, leaving the consumer with only $50 
of available credit with which to make purchases or other transactions. 
In addition, the consumer may pay interest on the fees until they are 
paid in full.
    Because of concerns that some consumers were not aware of how fees 
would affect their ability to use the card for its intended purpose of 
engaging in transactions, the Board's January 2009 Regulation Z Rule 
enhanced the disclosure requirements for these types of fees and 
clarified the circumstances under which a consumer who has been 
notified of the fees in the account-opening disclosures (but has not 
yet used the account or paid a fee) may reject the plan and not be 
obligated to pay the fees. See Sec.  226.5(b)(1)(iv), 74 FR 5402; Sec.  
226.5a(b)(14), 74 FR 5404; Sec.  226.6(b)(1)(xiii), 74 FR 5408. In 
addition, because the Board and the other Agencies were concerned that 
disclosure alone was insufficient to protect consumers from unfair 
practices regarding high-fee subprime credit cards, the January 2009 
FTC Act Rule prohibited institutions from charging certain types of 
fees during the first year after account opening that, in the 
aggregate, constituted the majority of the credit limit. In addition, 
these fees were limited to 25 percent of the initial credit limit in 
the first billing cycle with any additional amount (up to 50 percent) 
spread equally over the next five billing cycles. Finally, institutions 
were prohibited from circumventing these restrictions by providing the 
consumer with a separate credit account for the payment of additional 
fees. See 12 CFR 227.26, 74 FR 5561, 5566; see also 74 FR 5538-
5543.\20\
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    \20\ Although the Board, OTS, and NCUA adopted substantively 
identical rules under the FTC Act, each agency placed its rules in 
its respective part of Title 12 of the Code of Federal Regulations. 
Specifically, the Board placed its rules in part 227, the OTS in 
part 535, and the NCUA in part 706. For simplicity, this 
supplementary information cites to the Board's rules and official 
staff commentary.
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52(a)(1) General Rule
    As noted above, new TILA Section 127(n)(1) applies when ``the terms 
of a credit card account * * * require the payment of any fees (other 
than any late fee, over-the-limit fee, or fee for a payment returned 
for insufficient funds) by the consumer in the first year during which 
the account is opened in an aggregate amount in excess of 25 percent of 
the total amount of credit authorized under the account when the 
account is opened.'' Congress's use of ``require'' could be construed 
to mean that Section 127(n)(1) applies only to fees that are 
unconditional requirements of the account--in other words, fees that 
all consumers are required to pay regardless of how the account is used 
(such as account-opening fees, annual fees, and monthly maintenance 
fees). However, such a narrow reading would be inconsistent with the 
words ``any

[[Page 54164]]

fees,'' which indicate that Congress intended the provision to apply to 
a broader range of fees. Furthermore, categorically excluding fees that 
are conditional (in other words, fees that consumers are only required 
to pay in certain circumstances) would enable card issuers to 
circumvent the 25 percent limit by, for example, requiring consumers to 
pay fees in order to receive a particular credit limit or to use the 
account for purchases or other transactions. Finally, new TILA Section 
127(n)(1) specifically excludes three fees that are conditional (late 
payment fees, over-the-limit fees, and fees for a payment returned for 
insufficient funds), which suggests that Congress otherwise intended 
Section 127(n)(1) to apply to fees that a consumer is required to pay 
only in certain circumstances (such as fees for other violations of the 
account terms or fees for using the account for transactions).
    New TILA Section 127(n)(1) further provides that, if the 25 percent 
threshold is met, ``no payment of any fees (other than any late fee, 
over-the-limit fee, or fee for a payment returned for insufficient 
funds) may be made from the credit made available under the terms of 
the account.'' Although this language could be read to require card 
issuers to determine at account opening the total amount of fees that 
will be charged during the first year, the Board does not believe this 
was Congress's intent because the total amount of fees charged during 
the first year will depend on how the account is used. For example, 
most card issuers currently require consumers who use a credit card 
account for cash advances, balance transfers, or foreign transactions 
to pay a fee that is equal to a percentage of the transaction. Thus, 
the total amount of fees charged during the first year will depend on, 
among other things, the number and amount of cash advances, balance 
transfers, or foreign transactions. Although card issuers could address 
this uncertainty by ceasing to charge such fees, card issuers that did 
so would also likely reduce consumers' ability to use their credit 
cards for these types of transactions, which could be detrimental for 
some consumers. Accordingly, the Board believes Section 127(n)(1) 
should be interpreted to limit the fees charged to a credit card 
account during the first year to 25 percent of the initial credit limit 
and to prevent card issuers from collecting additional fees by other 
means (such as directly from the consumer or by providing a separate 
credit account). In order to effectuate this purpose and to facilitate 
compliance, the Board proposes to use its authority under TILA Section 
105(a) to implement new TILA Section 127(n) as set forth below.
    Proposed Sec.  226.52(a)(1)(i) provides that, if a card issuer 
charges any fees to a credit card account under an open-end (not home-
secured) consumer credit plan during the first year after account 
opening, those fees must not in total constitute more than 25 percent 
of the credit limit in effect when the account is opened. Proposed 
comment 52(a)(1)(i)-1 provides an illustrative example of the 
application of the rule.
    Proposed comment 52(a)(1)(i)-2 clarifies that a card issuer that 
charges a fee to a credit card account that exceeds the 25 percent 
limit complies with Sec.  226.52(a)(1)(i) if the card issuer waives or 
removes the fee and any associated interest charges or credits the 
account for an amount equal to the fee and any associated interest 
charges at the end of the billing cycle during which the fee was 
charged. Thus, if a card issuer's systems automatically assess a fee 
based on certain account activity (such as automatically assessing a 
cash advance fee when the account is used for a cash advance) and, as a 
result, the total amount of fees subject to Sec.  226.52(a) that have 
been charged to the account during the first year exceeds the 25 
percent limit, the card issuer can comply with Sec.  226.52(a)(1)(i) by 
removing the fee and any interest charged on that fee at the end of the 
billing cycle.
    Proposed comment 52(a)(1)(i)-3 clarifies that, because the 
limitation in Sec.  226.52(a)(1)(i) is based on the credit limit in 
effect when the account is opened, a subsequent increase in the credit 
limit during the first year does not permit the card issuer to charge 
to the account additional fees that would otherwise be prohibited (such 
as a fee for increasing the credit limit). An illustrative example is 
provided.
    Proposed Sec.  226.52(a)(1)(ii) would prevent card issuers from 
circumventing proposed Sec.  226.52(a)(1)(i) by providing that a card 
issuer that charges fees to the account during the first year after 
account opening must not require the consumer to pay any fees in excess 
of the 25 percent limit with respect to the account during the first 
year. Proposed comment 52(a)(1)(ii)-1 clarifies that Sec.  
226.52(a)(1)(ii) prohibits a card issuer that charges to a credit card 
account fees during the first year that total 25 percent of the initial 
credit limit from requiring the consumer to pay any additional fees 
through other means during the first year (such as through a payment 
from the consumer to the card issuer or from another credit account 
provided by the card issuer). An illustrative example is provided.
52(a)(2) Fees Not Subject to Limitations
    Proposed Sec.  226.52(a)(2)(i) implements the exception in new TILA 
Section 127(n)(1) for late payment fees, over-the-limit fees, and fees 
for payments returned for insufficient funds. However, pursuant to the 
Board's authority under TILA Section 105(a), proposed Sec.  
226.52(a)(2)(i) applies to all fees for returned payments because a 
payment may be returned for reasons other than insufficient funds (such 
as because the account on which the payment is drawn has been closed or 
because the consumer has instructed the institution holding that 
account not to honor the payment).
    As discussed above, new TILA Section 127(n)(1) applies to fees that 
a consumer is required to pay with respect to a credit card account. 
Accordingly, proposed Sec.  226.52(a)(2)(ii) would create an exception 
to Sec.  226.52(a) for fees that a consumer is not required to pay with 
respect to the account. The proposed commentary to Sec.  226.52(a) 
illustrates the distinction between fees the consumer is required to 
pay and those the consumer is not required to pay. Proposed comment 
52(a)(2)-1 clarifies that, except as provided in Sec.  226.52(a)(2), 
the limitations in Sec.  226.52(a)(1) apply to any fees that a card 
issuer will or may require the consumer to pay with respect to a credit 
card account during the first year after account opening. The comment 
lists several types of fees as examples of fees covered by Sec.  
226.52(a). First, fees that the consumer is required to pay for the 
issuance or availability of credit described in Sec.  226.5a(b)(2), 
including any fee based on account activity or inactivity and any fee 
that a consumer is required to pay in order to receive a particular 
credit limit. Second, fees for insurance described in Sec.  226.4(b)(7) 
or debt cancellation or debt suspension coverage described in Sec.  
226.4(b)(10) written in connection with a credit transaction, if the 
insurance or debt cancellation or debt suspension coverage is required 
by the terms of the account. Third, fees that the consumer is required 
to pay in order to engage in transactions using the account (such as 
cash advance fees, balance transfer fees, foreign transaction fees, and 
other fees for using the account for purchases). And fourth, fees that 
the consumer is required to pay for violating the terms of the account 
(except to the extent specifically excluded by Sec.  226.52(a)(2)(i)).
    Proposed comment 52(a)(2)-2 provides as examples of fees that

[[Page 54165]]

generally fall within the exception in Sec.  226.52(a)(2)(ii) fees for 
making an expedited payment (to the extent permitted by Sec.  
226.10(e)), fees for optional services (such as travel insurance), fees 
for reissuing a lost or stolen card, and statement reproduction fees.
    Finally, proposed comment 52(a)(2)-3 clarifies that a security 
deposit that is charged to a credit card account is a fee for purposes 
of Sec.  226.52(a). However, the comment also clarifies that Sec.  
226.52(a) would not prohibit a creditor from providing a secured credit 
card that requires a consumer to provide a cash collateral deposit that 
is equal to the credit line for the account.
52(a)(3) Rule of Construction
    New TILA Section 127(n)(2) states that ``[n]o provision of this 
subsection may be construed as authorizing any imposition or payment of 
advance fees otherwise prohibited by any provision of law.'' 15 U.S.C. 
1637(n)(2). The Board proposes to implement this provision in Sec.  
226.52(a)(3). As an example of a provision of law limiting the payment 
of advance fees, proposed comment 52(a)(3)-1 cites 16 CFR 310.4(a)(4), 
which prohibits any telemarketer or seller from ``[r]equesting or 
receiving payment of any fee or consideration in advance of obtaining a 
loan or other extension of credit when the seller or telemarketer has 
guaranteed or represented a high likelihood of success in obtaining or 
arranging a loan or other extension of credit for a person.''

Section 226.53 Allocation of Payments

    As amended by the Credit Card Act, TILA Section 164(b)(1) provides 
that, ``[u]pon receipt of a payment from a cardholder, the card issuer 
shall apply amounts in excess of the minimum payment amount first to 
the card balance bearing the highest rate of interest, and then to each 
successive balance bearing the next highest rate of interest, until the 
payment is exhausted.'' 15 U.S.C. 1666c(b)(1). However, amended Section 
164(b)(2) provides the following exception to this general rule: ``A 
creditor shall allocate the entire amount paid by the consumer in 
excess of the minimum payment amount to a balance on which interest is 
deferred during the last 2 billing cycles immediately preceding 
expiration of the period during which interest is deferred.'' As 
discussed in detail below, the Board proposes to implement amended TILA 
Section 164(b) in a new Sec.  226.53.
    As an initial matter, however, the Board proposes to interpret 
amended TILA Section 164(b) to apply to credit card accounts under an 
open-end (not home-secured) consumer credit plan rather than to all 
open-end consumer credit plans. Although the requirements in amended 
TILA Section 164(a) regarding the prompt crediting of payments apply to 
``[p]ayments received from [a consumer] under an open end consumer 
credit plan,'' the general payment allocation rule in amended TILA 
Section 164(b)(1) applies ``[u]pon receipt of a payment from a 
cardholder.'' Furthermore, the exception for deferred interest plans in 
amended Section 164(b)(1) requires ``the card issuer [to] apply amounts 
in excess of the minimum payment amount first to the card balance 
bearing the highest rate of interest. * * *'' Based on this language, 
it appears that Congress intended to apply the payment allocation 
requirements in amended Section 164(b) only to credit card accounts. 
This is consistent with the approach taken by the Board and the other 
Agencies in the January 2009 FTC Act Rule. See 74 FR 5560. Furthermore, 
the Board is not aware of concerns regarding payment allocation with 
respect to other open-end credit products, likely because such products 
generally do not apply different annual percentage rates to different 
balances.
53(a) General Rule
    The Board proposes to implement amended TILA Section 164(b)(1) in 
Sec.  226.53(a), which would state that, except as provided in Sec.  
226.53(b), when a consumer makes a payment in excess of the required 
minimum periodic payment for a credit card account under an open-end 
(not home-secured) consumer credit plan, the card issuer must allocate 
the excess amount first to the balance with the highest annual 
percentage rate and any remaining portion to the other balances in 
descending order based on the applicable annual percentage rate. The 
Board and the other Agencies adopted a similar provision in the January 
2009 FTC Act Rule in response to concerns that card issuers were 
applying consumers' payments in a manner that inappropriately maximized 
interest charges on credit card accounts with balances at different 
annual percentage rates. See 12 CFR 227.23, 74 FR 5512-5520, 5560. 
Specifically, most card issuers currently allocate consumers' payments 
first to the balance with the lowest annual percentage rate, resulting 
in the accrual of interest at higher rates on other balances (unless 
all balances are paid in full). Because many card issuers offer 
different rates for purchases, cash advances, and balance transfers, 
this practice can result in consumers who do not pay the balance in 
full each month incurring higher finance charges than they would under 
any other allocation method.\21\
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    \21\ For example, assume that a credit card account charges 
annual percentage rates of 12% on purchases and 20% on cash 
advances. Assume also that, in the same billing cycle, the consumer 
uses the account for purchases totaling $3,000 and cash advances 
totaling $300. If the consumer makes an $800 payment, most card 
issuers would apply the entire excess payment to the purchase 
balance and the consumer would incur interest charges on the more 
costly cash advance balance. Under these circumstances, the consumer 
is effectively prevented from paying off the balance with the higher 
interest rate (cash advances) unless the consumer pays the total 
balance (purchases and cash advances) in full.
---------------------------------------------------------------------------

    The Board is also proposing comment 53-1, which would clarify that 
proposed Sec.  226.53 does not limit or otherwise address the card 
issuer's ability to determine, consistent with applicable law and 
regulatory guidance, the amount of the required minimum periodic 
payment or how that payment is allocated. It would further clarify that 
a card issuer may, but is not required to, allocate the required 
minimum periodic payment consistent with the requirements in proposed 
Sec.  226.53 to the extent consistent with other applicable law or 
regulatory guidance.
    Comment 53-2 would clarify that proposed Sec.  226.53 permits a 
card issuer to allocate an excess payment based on the annual 
percentage rates and balances on the date the preceding billing cycle 
ends, on the date the payment is credited to the account, or on any day 
in between those two dates. Because the rates and balances on an 
account affect how excess payments will be applied, this comment is 
intended to provide flexibility regarding the point in time at which 
payment allocation determinations required by proposed Sec.  226.53 can 
be made. For example, it is possible that, in certain circumstances, 
the annual percentage rates may have changed between the close of a 
billing cycle and the date on which payment for that billing cycle is 
received.
    Comment 53-3 addresses the relationship between the dispute rights 
in Sec.  226.12(c) and the payment allocation requirements in proposed 
Sec.  226.53. This comment would clarify that, when a consumer has 
asserted a claim or defense against the card issuer pursuant to Sec.  
226.12(c), the card issuer must apply the consumer's payment in a 
manner that avoids or minimizes any reduction in the amount of that 
claim or defense. See footnote 25 to current Sec.  226.12(c) 
(redesignated in January 2009 Regulation Z Rule as comment 12(c)-4, 74 
FR 5488).

[[Page 54166]]

    Comment 53-4 addresses circumstances in which the same annual 
percentage rate applies to more than one balance on a credit card 
account but a different rate applies to at least one other balance on 
that account. For example, an account could have a $500 cash advance 
balance at 20%, a $1,000 purchase balance at 15%, and a $2,000 balance 
also at 15% that was previously at a 5% promotional rate. The comment 
would clarify that, in these circumstances, proposed Sec.  226.53 
generally does not require that any particular method be used when 
allocating among the balances with the same rate and that the card 
issuer may treat the balances with the same rate as a single balance or 
separate balances.\22\
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    \22\ An example of how excess payments could be applied in these 
circumstances is provided in proposed comment 53(a)-1.iv.
---------------------------------------------------------------------------

    However, this comment would further clarify that, when a balance on 
a credit card account is subject to a deferred interest or similar 
program that provides that a consumer will not be obligated to pay 
interest that accrues on the balance if the balance is paid in full 
prior to the expiration of a specified period of time, that balance 
must be treated as a balance with an annual percentage rate of zero for 
purposes of proposed Sec.  226.53 during that period of time rather 
than a balance with the rate at which interest accrues (the accrual 
rate).\23\ As an initial matter, treating the rate as zero is 
consistent with the nature of deferred interest and similar programs 
insofar as the consumer will not be obligated to pay any accrued 
interest if the balance is paid in full prior to expiration. In 
addition, treating the rate on a balance subject to a deferred interest 
or similar program as zero until the program expires ensures that 
excess payments will generally be applied first to balances on which 
interest is being charged, which will generally result in lower 
interest charges if the consumer pays the balance in full prior to 
expiration. Although treating the rate on this type of balance as zero 
could prevent consumers who wish to pay off that balance in 
installments over the course of the program from doing so, the Board 
believes that this treatment produces the best overall outcome for 
consumers and is consistent with amended TILA Section 164(b)(2) (as 
discussed below).
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    \23\ For example, if an account has a $1,000 purchase balance 
and a $2,000 balance that is subject to a deferred interest program 
that expires on July 1 and a 15% annual percentage rate applies to 
both, the balances must be treated as balances with different rates 
for purposes of proposed Sec.  226.53 until July 1. In addition, for 
purposes of allocating pursuant to proposed Sec.  226.53, any amount 
paid by the consumer in excess of the required minimum periodic 
payment must be applied first to the $1,000 purchase balance except 
during the last two billing cycles of the deferred interest period 
(when it must be applied first to any remaining portion of the 
$2,000 balance). See proposed comment 53(a)-1.v.
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    Finally, proposed comment 53(a)-1 provides examples of allocating 
excess payments consistent with proposed Sec.  226.53. The proposed 
commentary discussed above is similar to commentary adopted by the 
Board and the other Agencies in the January 2009 FTC Act Rule as well 
as to amendments to that commentary proposed in May 2009. See 74 FR 
5561-5562; 74 FR 20815-20816.
53(b) Special Rule for Balances Subject to Deferred Interest or Similar 
Programs
    The Board proposes to implement amended TILA Section 164(b)(2) in 
Sec.  226.53(b), which would provide that, when a balance on a credit 
card account under an open-end (not home-secured) consumer credit plan 
is subject to a deferred interest or similar program, the card issuer 
must allocate any amount paid by the consumer in excess of the required 
minimum periodic payment first to that balance during the two billing 
cycles immediately preceding expiration of the deferred interest period 
and any remaining portion to any other balances consistent with 
proposed Sec.  226.53(a). See 15 U.S.C. 1666c(b)(2).
    The Board and the other Agencies proposed a similar exception to 
the January 2009 FTC Act Rule's payment allocation provision in the May 
2009 proposed clarifications and amendments. See proposed 12 CFR 
227.23(b), 74 FR 20814. This exception was based on the Agencies' 
concern that, if the deferred interest balance was not the only balance 
on the account, the general payment allocation rule could prevent 
consumers from paying off the deferred interest balance prior to 
expiration of the deferred interest period unless they also paid off 
all other balances on the account.\24\ If the consumer is unaware of 
the need to pay off the entire balance, the consumer would be charged 
interest on the deferred interest balance and thus would not obtain the 
benefits of the deferred interest program. See 74 FR 20807-20808.
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    \24\ For example, assume that a credit card account has a $2,000 
purchase balance with a 20% annual percentage rate and a $1,000 
balance on which interest accrues at a 15% annual percentage rate, 
but the consumer will not be obligated to pay that interest if that 
balance is paid in full by a specified date. If the general rule in 
proposed Sec.  226.53(a) applied, the consumer would be required to 
pay $3,000 in order to avoid interest charges on the $1,000 balance.
---------------------------------------------------------------------------

    The Board is also proposing comment 53(b)-1, which clarifies the 
application of proposed Sec.  226.53(b) in circumstances where the 
deferred interest or similar program expires during a billing cycle 
(rather than at the end of a billing cycle). The comment would clarify 
that, for purposes of Sec.  226.53(b), a billing cycle does not 
constitute one of the two billing cycles immediately preceding 
expiration of a deferred interest or similar program if the expiration 
date for the program precedes the payment due date in that billing 
cycle. An example is provided. The Board believes that this 
interpretation is consistent with the purpose of amended TILA Section 
164(b)(2) insofar as it ensures that, at a minimum, the consumer will 
receive two complete billing cycles to avoid accrued interest charges 
by paying off a balance subject to a deferred interest or similar 
program.
    In addition, the Board is proposing comment 53(b)-2, which 
clarifies that a grace period during which any credit extended may be 
repaid without incurring a finance charge due to a periodic interest 
rate is not a deferred interest or similar program for purposes of 
Sec.  226.53(b). The Board and the other Agencies proposed a similar 
comment in May 2009. See 12 CFR 227.23 proposed comment 23(b)-1, 74 FR 
20816.

Section 226.54 Limitations on the Imposition of Finance Charges

    The Credit Card Act creates a new TILA Section 127(j), which 
applies when a consumer loses any time period provided by the creditor 
with respect to a credit card account within which the consumer may 
repay any portion of the credit extended without incurring a finance 
charge (i.e., a grace period). 15 U.S.C. 1637(j). In these 
circumstances, new TILA Section 127(j)(1)(A) prohibits the creditor 
from imposing a finance charge with respect to any balances for days in 
billing cycles that precede the most recent billing cycle (a practice 
that is sometimes referred to as ``two-cycle'' or ``double-cycle'' 
billing). Furthermore, in these circumstances, Section 127(j)(1)(B) 
prohibits the creditor from imposing a finance charge with respect to 
any balances or portions thereof in the current billing cycle that were 
repaid within the grace period. However, Section 127(j)(2) provides 
that these prohibitions do not apply to any adjustment to a finance 
charge as a result of the resolution of a dispute or the return of a 
payment for insufficient funds. As discussed below, the Board proposes 
to implement new TILA Section 127(j) in Sec.  226.54.

[[Page 54167]]

54(a) Limitations on Imposing Finance Charges as a Result of the Loss 
of a Grace Period
54(a)(1) General Rule
Prohibition on Two-Cycle Billing
    As noted above, new TILA Section 127(j)(1)(A) prohibits the balance 
computation method sometimes referred to as ``two-cycle billing'' or 
``double-cycle billing.'' The January 2009 FTC Act Rule contained a 
similar prohibition. See 12 CFR 227.25, 74 FR 5560-5561; see also 74 FR 
5535-5538. The two-cycle balance computation method has several 
permutations but, generally speaking, a card issuer using the two-cycle 
method assesses interest not only on the balance for the current 
billing cycle but also on balances on days in the preceding billing 
cycle. This method generally does not result in additional finance 
charges for a consumer who consistently carries a balance from month to 
month (and therefore does not receive a grace period) because interest 
is always accruing on the balance. Nor does the two-cycle method affect 
consumers who pay their balance in full within the grace period every 
month because interest is not imposed on their balances. The two-cycle 
method does, however, result in greater interest charges for consumers 
who pay their balance in full one month but not the next month (and 
therefore lose the grace period).
    The following example illustrates how the two-cycle method results 
in higher costs for these consumers than other balance computation 
methods: Assume that the billing cycle on a credit card account starts 
on the first day of the month and ends on the last day of the month. 
The payment due date for the account is the twenty-fifth day of the 
month. Under the terms of the account, the consumer will not be charged 
interest on purchases if the balance at the end of a billing cycle is 
paid in full by the following payment due date (in other words, if the 
consumer receives a grace period). The consumer uses the credit card to 
make a $500 purchase on March 15. The consumer pays the balance for the 
February billing cycle in full on March 25. At the end of the March 
billing cycle (March 31), the consumer's balance consists only of the 
$500 purchase and the consumer will not be charged interest on that 
balance if it is paid in full by the following due date (April 25). The 
consumer pays $400 on April 25, leaving a $100 balance. Because the 
consumer did not pay the balance for the March billing cycle in full on 
April 25, the consumer would lose the grace period and most card 
issuers would charge interest on the $500 purchase from the start of 
the April billing cycle (April 1) through April 24 and interest on the 
remaining $100 from April 25 through the end of the April billing cycle 
(April 30). Card issuers using the two-cycle method, however, would 
also charge interest on the $500 purchase from the date of purchase 
(March 15) to the end of the March billing cycle (March 31).
    The Board proposes to implement new TILA Section 127(j)(1)(A)'s 
prohibition on two-cycle billing in proposed Sec.  226.54(a)(1)(i), 
which states that, except as provided in proposed Sec.  226.54(b), a 
card issuer must not impose finance charges as a result of the loss of 
a grace period on a credit card account if those finance charges are 
based on balances for days in billing cycles that precede the most 
recent billing cycle. The Board also proposes to adopt Sec.  
226.54(a)(2), which would define ``grace period'' for purposes of Sec.  
226.54(a)(1) as having the same meaning as in Sec.  226.5(b)(2)(ii). 
Section 226.5(b)(2)(ii) was amended by the July 2009 Regulation Z 
Interim Final Rule to define ``grace period'' as a period within which 
any credit extended may be repaid without incurring a finance charge 
due to a periodic interest rate. 74 FR 36094. Finally, proposed comment 
54(a)(1)-4 explains that Sec.  226.54(a)(1)(i) prohibits use of the 
two-cycle average daily balance computation method.
Partial Grace Period Requirement
    As discussed above, many credit card issuers that provide a grace 
period currently require the consumer to pay off the entire balance on 
the account or the entire balance subject to the grace period before 
the period expires. However, new TILA Section 127(j)(1)(B) limits this 
practice. Specifically, Section 127(j)(1)(B) provides that a creditor 
may not impose any finance charge on a credit card account as a result 
of the loss of any time period provided by the creditor within which 
the consumer may repay any portion of the credit extended without 
incurring a finance charge with respect to any balances or portions 
thereof in the current billing cycle that were repaid within such time 
period. The Board proposes to implement this prohibition in proposed 
Sec.  226.54(a)(1)(ii), which states that, except as provided in 
proposed Sec.  226.54(b), a card issuer must not impose finance charges 
as a result of the loss of a grace period on a credit card account if 
those finance charges are based on any portion of a balance subject to 
a grace period that was repaid prior to the expiration of the grace 
period.
    The Board also proposes to adopt comment 54(a)(1)-5, which would 
clarify that card issuers are not required to use a particular method 
to comply with Sec.  226.54(a)(1)(ii) but provides an example of a 
method that is consistent with the requirements of Sec.  
226.54(a)(1)(ii). Specifically, it states that a card issuer can comply 
with the requirements of Sec.  226.54(a)(1)(ii) by applying the 
consumer's payment to the balance subject to the grace period at the 
end of the prior billing cycle (in a manner consistent with the payment 
allocation requirements in Sec.  226.53) and then calculating interest 
charges based on the amount of that balance that remains unpaid. An 
example of the application of this method is provided in proposed 
comment 54(a)(1)-6 along with other examples of the application of 
Sec.  226.54(a)(1)(i) and (ii).
    In addition to the commentary clarifying the specific prohibitions 
in Sec.  226.54(a)(1)(i) and (ii), the Board is proposing to adopt 
three comments clarifying the general scope and applicability of Sec.  
226.54. First, proposed comment 54(a)(1)-1 would clarify that Sec.  
226.54 does not require the card issuer to provide a grace period or 
prohibit a card issuer from placing limitations and conditions on a 
grace period to the extent consistent with Sec.  226.54. Currently, 
neither TILA nor Regulation Z requires a card issuer to provide a grace 
period. Nevertheless, for competitive and other reasons, many credit 
card issuers choose to do so, subject to certain limitations and 
conditions. For example, credit card grace periods generally apply to 
purchases but not to other types of transactions (such as cash 
advances). In addition, as noted above, card issuers that provide a 
grace period generally require the consumer to pay off all balances on 
the account or the entire balance subject to the grace period before 
the period expires.
    Although new TILA Section 127(j) prohibits the imposition of 
finance charges as a result of the loss of a grace period in certain 
circumstances, the Board does not interpret this provision to mandate 
that card issuers provide such a period or to limit card issuers' 
ability to place limitations and conditions on a grace period to the 
extent consistent with the statute. Instead, Section 127(j)(1) refers 
to ``any time provided by the creditor within which the [consumer] may 
repay any portion of the credit extended without incurring a finance 
charge.'' This language indicates that card issuers retain the ability 
to determine when and

[[Page 54168]]

under what conditions to provide a grace period on a credit card 
account so long as card issuers that choose to provide a grace period 
do so consistent with the requirements of new TILA Section 127(j).
    The Board also proposes to adopt comment 54(a)(1)-2, which would 
clarify that proposed Sec.  226.54 does not prohibit the card issuer 
from charging accrued interest at the expiration of a deferred interest 
or similar promotional program. Specifically, the comment would state 
that, when a card issuer offers a deferred interest or similar 
promotional program, Sec.  226.54 does not prohibit the card issuer 
from charging that accrued interest to the account if the balance is 
not paid in full prior to expiration of the period (consistent with 
Sec.  226.55 and other applicable law and regulatory guidance). A 
contrary interpretation of proposed Sec.  226.54 (and new TILA Section 
127(j)) would effectively eliminate deferred interest and similar 
programs by prohibiting the card issuer from charging interest based on 
the deferred interest balance during the deferred interest period if 
that balance was not paid in full at expiration. However, as discussed 
above with respect to proposed Sec.  226.53, the Credit Card Act's 
revisions to TILA Section 164 specifically create an exception to the 
general rule governing payment allocation for deferred interest 
programs, which indicates that Congress did not intend to ban such 
programs. See Credit Card Act Sec.  104(1) (revised TILA Section 
164(b)(2)).
    Finally, proposed comment 54(a)(1)-3 would clarify that card 
issuers must comply with the payment allocation requirements in Sec.  
226.53 even if doing so will result in the loss of a grace period. For 
example, as illustrated in proposed comment 54(a)(1)-6.ii, a card 
issuer must generally allocate a payment in excess of the required 
minimum periodic payment to a cash advance balance with a 25% rate 
before a purchase balance with a purchase balance with a 15% rate even 
if this will result in the loss of a grace period on the purchase 
balance. Although there could be a narrow set of circumstances in 
which--depending on the size of the balances and the amount of the 
difference between the rates--this allocation would result in higher 
interest charges than if the excess payment were applied in a way that 
preserved the grace period, Congress did not create an exception for 
these circumstances in the provisions of the Credit Card Act 
specifically addressing payment allocation.
54(b) Exceptions
    New TILA Section 127(j)(2) provides that the prohibitions in 
Section 127(j)(1) do not apply to any adjustment to a finance charge as 
a result of resolution of a dispute or as a result of the return of a 
payment for insufficient funds. The Board proposes to implement these 
exceptions in proposed Sec.  226.54(b).
    The Board interprets the exception for the ``resolution of a 
dispute'' in new TILA Section 127(j)(2)(A) to apply when the dispute is 
resolved pursuant to TILA's dispute resolution procedures. Accordingly, 
proposed Sec.  226.54(b)(1) would permit adjustments to finance charges 
when a dispute is resolved under Sec.  226.12 (which governs the right 
of a cardholder to assert claims or defenses against the card issuer) 
or Sec.  226.13 (which governs resolution of billing errors).
    In addition, because a payment may be returned for reasons other 
than insufficient funds (such as because the account on which the 
payment is drawn has been closed or because the consumer has instructed 
the institution holding that account not to honor the payment), the 
Board proposes to use its authority under TILA Section 105(a) to apply 
the exception in new TILA Section 127(j)(2)(B) to all circumstances in 
which adjustments to finance charges are made as a result of the return 
of a payment.

Section 226.55 Limitations on Increasing Annual Percentage Rates, Fees, 
and Charges

    As revised by the Credit Card Act, TILA Section 171(a) generally 
prohibits creditors from increasing any annual percentage rate, fee, or 
finance charge applicable to any outstanding balance on a credit card 
account under an open-end consumer credit plan. See 15 U.S.C. 1666i-1. 
Revised TILA Section 171(b), however, provides exceptions to this rule 
for temporary rates that expire after a specified period of time and 
rates that vary with an index. Revised TILA Section 171(b) also 
provides exceptions in circumstances where the creditor has not 
received the required minimum periodic payment within 60 days after the 
due date and where the consumer completes or fails to comply with the 
terms of a workout or temporary hardship arrangement. Revised TILA 
Section 171(c) limits a creditor's ability to change the terms 
governing repayment of an outstanding balance. The Credit Card Act also 
creates a new TILA Section 172, which provides that a creditor 
generally cannot increase a rate, fee, or finance charge during the 
first year after account opening and that a promotional rate (as 
defined by the Board) generally cannot expire earlier than six months 
after it takes effect. As discussed in detail below, the Board proposes 
to implement both revised TILA Section 171 and new TILA Section 172 in 
Sec.  226.55.
55(a) General Rule
    As noted above, revised TILA Section 171(a) generally prohibits 
increases in annual percentage rates, fees, and finance charges on 
outstanding balances. Revised TILA Section 171(d) defines ``outstanding 
balance'' as the amount owed as of the end of the fourteenth day after 
the date on which the creditor provides notice of an increase in the 
annual percentage rate, fee, or finance charge in accordance with TILA 
Section 127(i).\25\ TILA Section 127(i)(1) and (2), which went into 
effect on August 20, 2009, generally require creditors to notify 
consumers 45 days before an increase in an annual percentage rate or 
any other significant change in the terms of a credit card account (as 
determined by rule of the Board).
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    \25\ As discussed in the July 2009 Regulation Z Interim Final 
Rule (at 74 FR 36090), the Board believes that this fourteen-day 
period is intended to balance the interests of consumers and 
creditors. On the one hand, the fourteen-day period ensures that the 
increased rate, fee, or charge will not apply to transactions that 
occur before the consumer has received the notice and had a 
reasonable amount of time to review it and decide whether to use the 
account for additional transactions. On the other hand, the 
fourteen-day period reduces the potential that a consumer--having 
been notified of an increase for new transactions--will use the 45-
day notice period to engage in transactions to which the increased 
rate, fee, or charge cannot be applied.
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    In the July 2009 Regulation Z Interim Final Rule, the Board 
implemented new TILA Section 127(i)(1) and (2) in Sec.  226.9(c) and 
(g). In addition to increases in annual percentage rates, Sec.  
226.9(c)(2)(ii) lists the fees and other charges for which an increase 
constitutes a significant change to the account terms necessitating 45 
days' advance notice, including annual or other periodic fees, fixed 
finance charges, minimum interest charges, transaction charges, cash 
advance fees, late payment fees, over-the-limit fees, balance transfer 
fees, returned-payment fees, and fees for required insurance, debt 
cancellation, or debt suspension coverage. As discussed above, however, 
the Board is proposing to amend Sec.  226.9(c)(2)(ii) to identify these 
significant account terms by a cross-reference to the account-opening 
disclosure requirements in Sec.  226.6(b). Because the definition of 
outstanding balance in revised TILA Section 171(d) is expressly 
conditioned on the provision of the 45-day advance notice,

[[Page 54169]]

the Board believes that it is consistent with the purposes of the 
Credit Card Act to limit the general prohibition in revised TILA 
Section 171(a) on increasing fees and finance charges to increases in 
fees and charges for which a 45-day notice is required under Sec.  
226.9.
    Furthermore, because revised TILA Section 171(a) prohibits the 
application of increased fees and charges to outstanding balances 
rather than to new transactions or to the account as a whole, the Board 
believes that it is appropriate to apply that prohibition only to fees 
and charges that could be applied to an outstanding balance. For 
example, increased cash advance or balance transfer fees would apply 
only to new cash advances or balance transfers, not to existing 
balances. Similarly, increased penalty fees such as late payment fees, 
over-the-limit fees, and returned-payment fees would apply to the 
account as a whole rather than any specific balance.\26\ Accordingly, 
the Board proposes to use its authority under TILA Section 105(a) to 
limit the general prohibition in revised TILA Section 171(a) to 
increases in annual percentage rates and in fees and charges required 
to be disclosed under Sec.  226.6(b)(2)(ii) (fees for the issuance or 
availability of credit), Sec.  226.6(b)(2)(iii) (fixed finance charges 
and minimum interest charges), or Sec.  226.6(b)(2)(xii) (fees for 
required insurance, debt cancellation, or debt suspension 
coverage).\27\
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    \26\ However, the Board notes that a consumer that does not want 
to accept an increase in these types of fees may reject the increase 
pursuant to Sec.  226.9(h).
    \27\ As discussed below with respect to proposed Sec.  
226.55(b)(3), a card issuer may still increase these types of fees 
and charges so long as the increased fee or charge is not applied to 
the outstanding balance.
---------------------------------------------------------------------------

    In addition, for clarity and organizational purposes, proposed 
Sec.  226.55(a) generally prohibits increases in annual percentage 
rates and fees and charges required to be disclosed under Sec.  
226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) with respect to all 
transactions, rather than just increases on existing balances. The 
Board does not intend to alter the substantive requirements in revised 
TILA Section 171. Instead, the Board believes that revised TILA Section 
171 can be more clearly and effectively implemented if increases in 
rates, fees, and charges that apply to transactions that occur more 
than fourteen days after provision of a Sec.  226.9(c) or (g) notice 
are addressed in an exception to the general prohibition rather than 
placed outside that prohibition. The Board and the other Agencies 
adopted a similar approach in the January 2009 FTC Act Rule. See 12 CFR 
227.24, 74 FR 5560. Accordingly, proposed Sec.  226.55(a) states that, 
except as provided in Sec.  226.55(b), a card issuer must not increase 
an annual percentage rate or a fee or charge required to be disclosed 
under Sec.  226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii).
    Proposed comment 55(a)-1 provides examples of the general 
application of Sec.  226.55(a) and the exceptions in Sec.  226.55(b). 
Additional examples illustrating specific aspects of the exceptions in 
Sec.  226.55(b) are provided in the commentary to those exceptions.
    Proposed comment 55(a)-2 clarifies that nothing in Sec.  226.55 
prohibits a card issuer from assessing interest due to the loss of a 
grace period to the extent consistent with Sec.  226.54. In addition, 
the comment states that a card issuer has not reduced an annual 
percentage rate on a credit account for purposes of Sec.  226.55 if the 
card issuer does not charge interest on a balance or a portion thereof 
based on a payment received prior to the expiration of a grace period. 
For example, if the annual percentage rate for purchases on an account 
is 15% but the card issuer does not charge any interest on a $500 
purchase balance because that balance was paid in full prior to the 
expiration of the grace period, the card issuer has not reduced the 15% 
purchase rate to 0% for purposes of Sec.  226.55.
55(b) Exceptions
    Revised TILA Section 171(b) lists the exceptions to the general 
prohibition in revised Section 171(a). Similarly, proposed Sec.  
226.55(b) lists the exceptions to the general prohibition in proposed 
Sec.  226.55(a). In addition, proposed Sec.  226.55(b) clarifies that 
the listed exceptions are not mutually exclusive. In other words, a 
card issuer may increase an annual percentage rate or a fee or charge 
required to be disclosed under Sec.  226.6(b)(2)(ii), (b)(2)(iii), or 
(b)(2)(xii) pursuant to an exception set forth in Sec.  226.55(b) even 
if that increase would not be permitted under a different exception. 
Proposed comment 55(b)-1 clarifies that, for example, although a card 
issuer cannot increase an annual percentage rate pursuant to Sec.  
226.55(b)(1) unless that rate is provided for a specified period of at 
least six months, the card issuer may increase an annual percentage 
rate during a specified period due to an increase in an index 
consistent with Sec.  226.55(b)(2). Similarly, although Sec.  
226.55(b)(3) does not permit a card issuer to increase an annual 
percentage rate during the first year after account opening, the card 
issuer may increase the rate during the first year after account 
opening pursuant to Sec.  226.55(b)(4) if the required minimum periodic 
payment is not received within 60 days after the due date.
    Proposed comment 55(b)-2 addresses circumstances where the date on 
which a rate, fee, or charge may be increased pursuant to an exception 
in Sec.  226.55(b) does not fall on the first day of a billing cycle. 
Because the Board understands that it may be operationally difficult 
for some card issuers to apply an increased rate, fee, or charge in the 
middle of a billing cycle, the comment clarifies that, in these 
circumstances, the card issuer may delay application of the increased 
rate, fee, or charge until the first day of the following billing cycle 
without relinquishing the ability to apply that rate, fee, or charge. 
An illustrative example is provided.
    Proposed comment 55(b)-3 clarifies that, although nothing in Sec.  
226.55 prohibits a card issuer from lowering an annual percentage rate 
or a fee or charge required to be disclosed under Sec.  
226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii), a card issuer that does 
so cannot subsequently increase the rate, fee, or charge unless 
permitted by one of the exceptions in Sec.  226.55(b). The Board 
believes that this interpretation is consistent with the intent of 
revised TILA Section 171 insofar as it ensures that consumers are 
informed of the key terms and conditions associated with a lowered 
rate, fee, or charge before relying on that rate, fee, or charge. For 
example, revised Section 171(b)(1)(A) requires creditors to disclose 
how long a temporary rate will apply and the rate that will apply after 
the temporary rate expires before the consumer engages in transactions 
in reliance on the temporary rate. Similarly, revised Section 
171(b)(3)(B) requires the creditor to disclose the terms of a workout 
or temporary hardship arrangement before the consumer agrees to the 
arrangement. The comment provides examples illustrating the application 
of Sec.  226.55 when an annual percentage rate is lowered.
    As discussed below, several of the exceptions in proposed Sec.  
226.55 require the creditor to determine when a transaction occurred. 
For example, consistent with revised TILA Section 171(d)'s definition 
of ``outstanding balance,'' proposed Sec.  226.55(b)(3)(ii) provides 
that a card issuer that discloses an increased rate pursuant to Sec.  
226.9(c) or (g) may not apply that increased rate to transactions that 
occurred prior to or within fourteen days after provision of the 
notice. Accordingly, proposed comment 55(b)-4 clarifies that when a 
transaction occurred, for purposes of Sec.  226.55, is generally 
determined by the

[[Page 54170]]

date of the transaction. The Board understands that, in certain 
circumstances, a short delay can occur between the date of the 
transaction and the date on which the merchant charges that transaction 
to the account. As a general matter, the Board believes that these 
delays should not affect the application of Sec.  226.55. However, to 
address the operational difficulty for card issuers in the rare 
circumstance where a transaction that occurred within fourteen days 
after provision of a Sec.  226.9(c) or (g) notice is not charged to the 
account prior to the effective date of the increase or change, this 
comment would clarify that the card issuer may treat the transaction as 
occurring more than fourteen days after provision of the notice for 
purposes of Sec.  226.55. In addition, the comment would clarify that, 
when a merchant places a ``hold'' on the available credit on an account 
for an estimated transaction amount because the actual transaction 
amount will not be known until a later date, the date of the 
transaction for purposes of Sec.  226.55 is the date on which the card 
issuer receives the actual transaction amount from the merchant. 
Illustrative examples are provided in proposed comment 55(b)(3)-4.iii. 
This comment is based on comment 9(h)(3)(ii)-2, which was adopted in 
the July 2009 Regulation Z Interim Final Rule. See 74 FR 36101.
    Proposed comment 55(b)-5 clarifies the meaning of the term 
``category of transactions,'' which is used in some of the exceptions 
in Sec.  226.55(b). This comment states that, for purposes of Sec.  
226.55, a ``category of transactions'' is a type or group of 
transactions to which an annual percentage rate applies that is 
different than the annual percentage rate that applies to other 
transactions.\28\ For example, purchase transactions, cash advance 
transactions, and balance transfer transactions are separate categories 
of transactions for purposes of Sec.  226.55 if a card issuer applies 
different annual percentage rates to each. Furthermore, if, for 
example, the card issuer applies different annual percentage rates to 
different types of purchase transactions (such as one rate for 
purchases of gasoline or purchases over $100 and a different rate for 
all other purchases), each type constitutes a separate category of 
transactions for purposes of Sec.  226.55.
---------------------------------------------------------------------------

    \28\ Similarly, a type or group of transactions is a ``category 
of transactions'' for purposes of Sec.  226.55 if a fee or charge 
required to be disclosed under Sec.  226.6(b)(2)(ii), (b)(2)(iii), 
or (b)(2)(xii) applies to those transactions that is different than 
the fee or charge that applies to other transactions.
---------------------------------------------------------------------------

    Proposed comment 55(b)-6 clarifies the relationship between the 
exceptions in Sec.  226.55(b) and the 45-day advance notice 
requirements in Sec.  226.9(c) and (g). Specifically, it states that 
nothing in Sec.  226.55 alters the requirements in Sec.  226.9(c) and 
(g) that creditors provide written notice at least 45 days prior to the 
effective date of certain increases in annual percentage rates, fees, 
and charges. For example, although proposed Sec.  226.55(b)(3)(ii) 
permits a card issuer that discloses an increased rate pursuant to 
Sec.  226.9(c) or (g) to apply that rate to transactions that occurred 
more than fourteen days after provision of the notice, the card issuer 
cannot begin to accrue interest at the increased rate until that 
increase goes into effect, consistent with Sec.  226.9(c) or (g). 
Illustrative examples are provided in proposed comment 55(b)(3)-4. 
Similarly, the comment clarifies that, on or after the effective date, 
the card issuer cannot calculate interest charges for days before the 
effective date based on the increased rate.\29\
---------------------------------------------------------------------------

    \29\ The Board understands that, when the effective date for an 
increased rate falls in the middle of a billing cycle, some card 
issuers are unable to begin accruing interest at the increased rate 
on the effective date without applying that increased rate for the 
entire billing cycle (including to balances on days preceding the 
effective date). Although neither Sec.  226.9 nor Sec.  226.55 
permits a card issuer to accrue interest at the increased rate for 
days that precede the effective date, proposed comment 55(b)-2 
acknowledges this operational difficulty by clarifying that card 
issuers may delay application of the increased rate until the first 
day of the following billing cycle without relinquishing the ability 
to apply that rate.
---------------------------------------------------------------------------

55(b)(1) Temporary Rate Exception

    Revised TILA Section 171(b)(1) provides that a creditor may 
increase an annual percentage rate upon the expiration of a specified 
period of time, subject to three conditions. First, prior to 
commencement of the period, the creditor must have disclosed to the 
consumer, in a clear and conspicuous manner, the length of the period 
and the increased annual percentage rate that will apply after 
expiration of the period. Second, at the end of the period, the 
creditor must not apply a rate that exceeds the increased rate that was 
disclosed prior to commencement of the period. Third, at the end of the 
period, the creditor must not apply the previously-disclosed increased 
rate to transactions that occurred prior to commencement of the period. 
Thus, under this exception, a creditor that, for example, discloses at 
account opening that a 5% rate will apply to purchases for six months 
and that a 15% rate will apply thereafter would be permitted to 
increase the rate on the purchase balance to 15% after six months.
    Proposed Sec.  226.55(b)(1) implements the exception in revised 
TILA Section 171(b)(1) regarding temporary rates as well as the 
requirements in new TILA Section 172(b) regarding promotional rates. 
New TILA Section 172(b) provides that ``[n]o increase in any * * * 
promotional rate (as that term is defined by the Board) shall be 
effective before the end of the 6-month period beginning on the date on 
which the promotional rate takes effect, subject to such reasonable 
exceptions as the Board may establish by rule.'' Pursuant to this 
authority, the Board believes that promotional rates should be subject 
to the same requirements and exceptions as other temporary rates that 
expire after a specified period of time. In particular, the Board 
believes that consumers who rely on promotional rates should receive 
the disclosures and protections set forth in revised TILA Section 
171(b)(1) and proposed Sec.  226.55(b)(1). This will ensure that a 
consumer will receive disclosure of the terms of the promotional rate 
before engaging in transactions in reliance on that rate and that, at 
the expiration of the promotion, the rate will only be increased 
consistent with those terms. Accordingly, the Board has incorporated 
the requirement that promotional rates last at least six months into 
proposed Sec.  226.55(b)(1), which would permit a card issuer to 
increase a temporary annual percentage rate upon the expiration of a 
specified period that is six months or longer.
    Furthermore, pursuant to its authority under new TILA Section 
172(b) to establish reasonable exceptions to the six-month requirement 
for promotional rates, the Board believes that it is appropriate to 
apply the other exceptions in revised TILA Section 171(b) and proposed 
Sec.  226.55(b) to promotional rate offers. For example, the Board 
believes that a card issuer should be permitted to offer a consumer a 
promotional rate that varies with an index consistent with revised TILA 
Section 171(b)(2) and proposed Sec.  226.55(b)(2) (such as a rate that 
is one percentage point over a prime rate that is not under the card 
issuer's control). Similarly, the Board believes that a card issuer 
should be permitted to increase a promotional rate if the account 
becomes more than 60 days delinquent during the promotional period 
consistent with revised TILA Section 171(b)(4) and proposed Sec.  
226.55(b)(4). Thus, the Board would apply to promotional rates the 
general proposition in proposed Sec.  226.55(b) that a rate may be 
increased pursuant to an exception in Sec.  226.55(b) even if that 
increase would not be permitted under a different exception.
    The Board proposes to implement the requirement in revised TILA 
Section

[[Page 54171]]

171(b)(1)(A) that creditors disclose the length of the period and the 
annual percentage rate that will apply after the expiration of that 
period in proposed Sec.  226.55(b)(1)(i). This language tracks Sec.  
226.9(c)(2)(v)(B)(1), which the Board adopted in the July 2009 
Regulation Z Interim Final Rule as part of an exception to the general 
requirement that creditors provide 45 days notice before an increase in 
annual percentage rate. Because the disclosure requirements in Sec.  
226.9(c)(2)(v)(B)(1) and proposed Sec.  226.55(b)(1)(i) implement the 
same statutory provision (revised TILA Section 171(b)(1)(A)), the Board 
believes a single set of disclosures should satisfy both requirements. 
Accordingly, proposed comment 55(b)(1)-1 clarifies that a card issuer 
that has complied with the disclosure requirements in Sec.  
226.9(c)(2)(v)(B) has also complied with the disclosure requirements in 
Sec.  226.55(b)(2)(i). In other words, the expiration of a temporary 
rate cannot be used as a reason to apply an increased rate to a balance 
that preceded application of the temporary rate. For example, assume 
that a credit card account has a $5,000 purchase balance at a 15% rate 
and that the card issuer reduces the rate that applies to all purchases 
(including the $5,000 balance) to 10% for six months with a 22% rate 
applying thereafter. Under proposed Sec.  226.55(b)(1)(ii)(A), the card 
issuer could not apply the 22% rate to the $5,000 balance upon 
expiration of the six-month period (although the card issuer could 
apply the original 15% rate to that balance).
    The Board proposes to implement in Sec.  226.55(b)(1)(ii) the 
limitations in revised TILA Section 171(b)(1)(B) and (C) on the 
application of increased rates following expiration of the specified 
period. First, proposed Sec.  226.55(b)(1)(ii)(A) states that, upon 
expiration of the specified period, a card issuer must not apply an 
annual percentage rate to transactions that occurred prior to the 
period that exceeds the rate that applied to those transactions prior 
to the period.
    Second, proposed Sec.  226.55(b)(1)(ii)(B) states that, if the 
disclosures required by Sec.  226.55(b)(1)(i) are provided pursuant to 
Sec.  226.9(c), the card issuer must not--upon expiration of the 
specified period--apply an annual percentage rate to transactions that 
occurred within fourteen days after provision of the notice that 
exceeds the rate that applied to that category of transactions prior to 
provision of the notice. The Board believes that this clarification is 
necessary to ensure that card issuers do not apply an increased rate to 
an outstanding balance (as defined in revised TILA Section 171(d)) upon 
expiration of the specified period. Accordingly, consistent with the 
purpose of revised TILA Section 171(d), proposed Sec.  
226.55(b)(1)(ii)(B) would ensure that a consumer will have fourteen 
days to receive the Sec.  226.9(c) notice and review the terms of the 
temporary rate (including the increased rate that will apply upon 
expiration of the specified period) before engaging in transactions to 
which that increased rate may eventually apply.
    Third, proposed Sec.  226.55(b)(1)(ii)(C) states that, upon 
expiration of the specified period, the card issuer must not apply an 
annual percentage rate to transactions that occurred during the 
specified period that exceeds the increased rate disclosed pursuant to 
Sec.  226.55(b)(1)(i). In other words, the card issuer can only 
increase the rate consistent with the previously-disclosed terms. 
Examples illustrating the application of proposed Sec.  
226.55(b)(1)(ii)(A), (B), and (C) are provided in comments 55(a)-1 and 
55(b)-3.
    Proposed comment 55(b)(1)-2 clarifies when the specified period 
begins for purposes of the six-month requirement in Sec.  226.55(b)(1). 
As a general matter, proposed comment 55(b)(1)-1 states that the 
specified period must expire no less than six months after the date on 
which the creditor discloses to the consumer the length of the period 
and rate that will apply thereafter (as required by Sec.  
226.55(b)(1)(i)). However, if the card issuer provides these 
disclosures before the consumer can use the account for transactions to 
which the temporary rate will apply, the temporary rate must expire no 
less than six months from the date on which it becomes available. For 
example, assume that on January 1 a card issuer offers a 5% annual 
percentage rate for six months on purchases (with a 15% rate applying 
thereafter). If a consumer may begin making purchases at the 5% rate on 
January 1, Sec.  226.55(b)(1) would permit the issuer to begin accruing 
interest at the 15% rate on July 1. However, if a consumer may not 
begin making purchases at the 5% rate until February 1, Sec.  
226.55(b)(1) would not permit the issuer to begin accruing interest at 
the 15% rate until August 1.
    The Board understands that card issuers often limit the application 
of a promotional rate to particular categories of transactions (such as 
balance transfers or purchases over $100). The Board does not believe 
that the six-month requirement in new TILA Section 172(b) was intended 
to prohibit this practice so long as the consumer receives the benefit 
of the promotional rate for at least six months. Accordingly, proposed 
comment 55(b)(1)-2 clarifies that Sec.  226.55(b)(1) does not prohibit 
these types of limitations. However, the comment also clarifies that, 
in circumstances where the card issuer limits application of the 
temporary rate to a particular transaction, the temporary rate must 
expire no less than six months after the date on which that transaction 
occurred. For example, if on January 1 a creditor offers a 0% temporary 
rate on the purchase of an appliance and the consumer uses the account 
to purchase a $1,000 appliance on March 1, the creditor cannot increase 
the rate on that $1,000 purchase until September 1.
    The Board believes that this application of the six-month 
requirement is consistent with the intent of new TILA Section 172(b). 
Although the six-month requirement could be interpreted as requiring a 
separate six-month period for every transaction to which the temporary 
rate applies, the Board believes this interpretation would create a 
level of complexity that would be not only confusing for consumers but 
also operationally burdensome for card issuers, potentially leading to 
a reduction in promotional rate offers that provide significant 
consumer benefit.
    Proposed comment 55(b)(1)-3 clarifies that the general prohibition 
in Sec.  226.55(a) applies to the imposition of accrued interest upon 
the expiration of a deferred interest or similar promotional program 
under which the consumer is not obligated to pay interest that accrues 
on a balance if that balance is paid in full prior to the expiration of 
a specified period of time. As discussed in the January 2009 FTC Act 
Rule, the assessment of deferred interest is effectively an increase in 
rate on an existing balance. See 74 FR 5527-5528. However, if properly 
disclosed, deferred interest programs can provide substantial benefits 
to consumers. See 74 FR 20812-20813. Furthermore, as discussed above 
with respect to proposed comment 54(a)(1)-2, the Board does not believe 
that the Credit Card Act was intended to ban properly-disclosed 
deferred interest programs. Accordingly, proposed comment 55(b)(1)-3 
further clarifies that card issuers may continue to offer such programs 
consistent with the requirements of Sec.  226.55(b)(1). In particular, 
prior to the commencement of the deferred interest period, Sec.  
226.55(b)(1)(i) requires the card issuer to disclose the length of the 
period and the rate that will apply to the balance subject to the 
deferred interest program

[[Page 54172]]

if that balance is not paid in full prior to expiration of the period. 
The comment provides examples illustrating the application of Sec.  
226.55 to deferred interest and similar programs.
    Finally, proposed comment 55(b)(1)-4 clarifies that Sec.  
226.55(b)(1) does not permit a card issuer to apply an increased rate 
that is contingent on a particular event or occurrence or that may be 
applied at the card issuer's discretion. The comment provides examples 
of rate increases that are not permitted by Sec.  226.55.
55(b)(2) Variable Rate Exception
    Revised TILA Section 171(b)(2) provides that a card issuer may 
increase ``a variable annual percentage rate in accordance with a 
credit card agreement that provides for changes in the rate according 
to operation of an index that is not under the card issuer's control 
and is available to the general public.'' The Board proposes to 
implement this exception in Sec.  226.55(b)(2), which states that a 
creditor may increase an annual percentage rate that varies according 
to an index that is not under the creditor's control and is available 
to the general public when the increase in rate is due to an increase 
in the index.
    The proposed commentary to Sec.  226.55(b)(2) is modeled on 
commentary adopted by the Board and the other Agencies in the January 
2009 FTC Act Rule as well as Sec.  226.5b(f) and its commentary. See 12 
CFR 227.24 comments 24(b)(2)-1 through 6, 74 FR 5531, 5564; Sec.  
226.5b(f)(1), (3)(ii); comment 5b(f)(1)-1 and -2; comment 5b(f)(3)(ii)-
1. Proposed comment 55(b)(2)-1 clarifies that Sec.  226.55(b)(2) does 
not permit a card issuer to increase a variable annual percentage rate 
by changing the method used to determine that rate (such as by 
increasing the margin), even if that change will not result in an 
immediate increase. However, consistent with existing comment 
5b(f)(3)(v)-2, the comment also clarifies that a card issuer may change 
the day of the month on which index values are measured to determine 
changes to the rate.
    Proposed comment 55(b)(1)-2 further clarifies that a card issuer 
may not increase a variable rate based on its own prime rate or cost of 
funds. A card issuer is permitted, however, to use a published prime 
rate, such as that in the Wall Street Journal, even if the card 
issuer's own prime rate is one of several rates used to establish the 
published rate. In addition, proposed comment 55(b)(2)-3 clarifies that 
a publicly-available index need not be published in a newspaper, but it 
must be one the consumer can independently obtain (by telephone, for 
example) and use to verify the annual percentage rate applied to the 
credit card account.
    Because the conversion of a non-variable rate to a variable rate 
could lead to future increases in the rate that applies to an existing 
balance, proposed comment 55(b)(2)-4 clarifies that a non-variable rate 
may be converted to a variable rate only when specifically permitted by 
one of the exceptions in Sec.  226.55(b). For example, under Sec.  
226.55(b)(1), a card issuer may convert a non-variable rate to a 
variable rate at the expiration of a specified period if this change 
was disclosed prior to commencement of the period.
    Because Sec.  226.55 applies only to increases in annual percentage 
rates, proposed comment 55(b)(2)-5 clarifies that nothing in Sec.  
226.55 prohibits a card issuer from changing a variable rate to an 
equal or lower non-variable rate. Whether the non-variable rate is 
equal to or lower than the variable rate is determined at the time the 
card issuer provides the notice required by Sec.  226.9(c). An 
illustrative example is provided.
    Proposed comment 55(b)(2)-6 clarifies that a card issuer may change 
the index and margin used to determine a variable rate if the original 
index becomes unavailable, so long as historical fluctuations in the 
original and replacement indices were substantially similar and the 
replacement index and margin will produce a rate similar to the rate 
that was in effect at the time the original index became unavailable. 
This comment further clarifies that, if the replacement index is newly 
established and therefore does not have any rate history, it may be 
used if it produces a rate substantially similar to the rate in effect 
when the original index became unavailable.
55(b)(3) Advance Notice Exception
    Proposed Sec.  226.55(a) prohibits increases in annual percentage 
rates and fees and charges required to be disclosed under Sec.  
226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) with respect to both 
existing balances and new transactions. However, as discussed above, 
the prohibition on increases in rates, fees, and finance charges in 
revised TILA Section 171 applies only to ``outstanding balances'' as 
defined in Section 171(d). Accordingly, proposed Sec.  226.55(b)(3) 
provides that a card issuer may generally increase an annual percentage 
rate or a fee or charge required to be disclosed under Sec.  
226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) with respect to new 
transactions after complying with the notice requirements in Sec.  
226.9(b), (c), or (g).
    Because Sec.  226.9 applies different notice requirements in 
different circumstances, proposed Sec.  226.55(b)(3) clarifies that the 
transactions to which an increased rate, fee, or charge may be applied 
depend on the type of notice required. As a general matter, when an 
annual percentage rate, fee, or charge is increased pursuant to Sec.  
226.9(c) or (g), proposed Sec.  226.55(b)(3)(ii) provides that the card 
issuer must not apply the increased rate, fee, or charge to 
transactions that occurred within fourteen days after provision of the 
notice. This is consistent with revised TILA Section 171(d), which 
defines the outstanding balance to which an increased rate, fee, or 
finance charge may not be applied as the amount due at the end of the 
fourteenth day after notice of the increase is provided.
    However, pursuant to its authority under TILA Section 105(a), the 
Board proposes to establish a different approach for increased rates, 
fees, and charges disclosed pursuant to Sec.  226.9(b). As discussed in 
the July 2009 Regulation Z Interim Final Rule, the Board believes that 
the fourteen-day period is intended, in part, to ensure that an 
increased rate, fee, or charge will not apply to transactions that 
occur before the consumer has received the notice of the increase and 
had a reasonable amount of time to review it and decide whether to 
engage in transactions to which the increased rate, fee, or charge will 
apply. See 74 FR 36090. The Board does not believe that a fourteen-day 
period is necessary for increases disclosed pursuant to Sec.  226.9(b), 
which requires card issuers to disclose any new finance charge terms 
applicable to supplemental access devices (such as convenience checks) 
and additional features added to the account after account opening 
before the consumer uses the device or feature for the first time. For 
example, Sec.  226.9(b)(3)(i)(A) requires that card issuers providing 
checks that access a credit card account to which a temporary 
promotional rate applies disclose key terms on the front of the page 
containing the checks, including the promotional rate, the period 
during which the promotional rate will be in effect, and the rate that 
will apply after the promotional rate expires. Thus, unlike increased 
rates, fees, and charges disclosed pursuant to a Sec.  226.9(c) and (g) 
notice, the fourteen-day period is not necessary for increases 
disclosed pursuant to Sec.  226.9(b) because the device or feature will 
not be used before the consumer has received notice of the applicable 
terms. Accordingly, proposed

[[Page 54173]]

Sec.  226.55(b)(3)(i) provides that, if a card issuer discloses an 
increased annual percentage rate, fee, or charge pursuant to Sec.  
226.9(b), the card issuer must not apply that rate, fee, or charge to 
transactions that occurred prior to provision of the notice.
    Proposed Sec.  226.55(b)(3)(iii) provides that the exception in 
Sec.  226.55(b)(3) does not permit a card issuer to increase an annual 
percentage rate or a fee or charge required to be disclosed under Sec.  
226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) during the first year 
after the credit card account is opened. This provision implements new 
TILA Section 172(a), which generally prohibits increases in annual 
percentage rates, fees, and finance charges during the one-year period 
beginning on the date the account is opened.
    Proposed comment 55(b)(3)-1 clarifies that a card issuer may not 
increase a fee or charge required to be disclosed under Sec.  
226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) pursuant to Sec.  
226.55(b)(3) if the consumer has rejected the increased fee or charge 
pursuant to Sec.  226.9(h). In addition, proposed comment 55(b)(3)-2 
clarifies that, if an increased annual percentage rate, fee, or charge 
is disclosed pursuant to both Sec.  226.9(b) and (c), the requirements 
in Sec.  226.55(b)(3)(ii) control and the rate, fee, or charge may only 
be applied to transactions that occur more than fourteen days after 
provision of the Sec.  226.9(c) notice.
    Proposed comment 55(b)(3)-3 clarifies whether certain changes to a 
credit card account constitute an ``account opening'' for purposes of 
the prohibition in Sec.  226.55(b)(3)(iii) on increasing annual 
percentage rates and fees and charges required to be disclosed under 
Sec.  226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) during the first 
year after account opening. In particular, the comment would 
distinguish between circumstances in which a card issuer opens multiple 
accounts for the same consumer and circumstances in which a card issuer 
substitutes, replaces, or consolidates one account with another. As an 
initial matter, this comment would clarify that, when a consumer has a 
credit card account with a card issuer and the consumer opens a new 
credit card account with the same card issuer (or its affiliate or 
subsidiary), the opening of the new account constitutes the opening of 
a credit card account for purposes of Sec.  226.55(b)(3)(iii) if, more 
than 30 days after the new account is opened, the consumer has the 
option to obtain additional extensions of credit on each account. Thus, 
for example, if a consumer opens a credit card account with a card 
issuer on January 1 of year one and opens a second credit card account 
with that card issuer on July 1 of year one, the opening of the second 
account constitutes an account opening for purposes of Sec.  
226.55(b)(3)(iii) so long as, on August 1, the consumer has the option 
to engage in transactions using either account. This is the case even 
if the consumer transfers a balance from the first account to the 
second. Thus, because the card issuer has two separate account 
relationships with the consumer, the prohibition in Sec.  
226.55(b)(3)(iii) on increasing annual percentage rates and fees and 
charges required to be disclosed under Sec.  226.6(b)(2)(ii), 
(b)(2)(iii), or (b)(2)(xii) during the first year after account opening 
would apply to the opening of the second account.\30\
---------------------------------------------------------------------------

    \30\ This comment is based on commentary to the January 2009 FTC 
Act Rule proposed by the Board and the other Agencies in May 2009. 
See 12 CFR 227.24, proposed comment 24-4, 74 FR 20816; see also 74 
FR 20809. In that proposal, the Board recognized that the process of 
replacing one account with another generally is not instantaneous. 
If, for example, a consumer requests that a credit card account with 
a $1,000 balance be upgraded to a credit card account that offers 
rewards on purchases, the second account may be opened immediately 
or within a few days but, for operational reasons, there may be a 
delay before the $1,000 balance can be transferred and the first 
account can be closed. For this reason, the Board sought comment on 
whether 15 or 30 days was the appropriate amount of time to complete 
this process. In response, industry commenters generally stated that 
at least 30 days was required. Accordingly, the Board is proposing a 
30-day period in comment 55(b)(3)-3.
---------------------------------------------------------------------------

    In contrast, the comment would clarify that an account has not been 
opened for purposes of Sec.  226.55(b)(3)(iii) when a card issuer 
substitutes or replaces one credit card account with another credit 
card account (such as when a retail credit card is replaced with a 
cobranded general purpose card that can be used at a wider number of 
merchants) or when a card issuer consolidates or combines a credit card 
account with one or more other credit card accounts into a single 
credit card account. As discussed below with respect to proposed Sec.  
226.55(d)(2), the Board believes that these transfers should be treated 
as a continuation of the existing account relationship rather than the 
creation of a new account relationship. Similarly, the comment would 
also clarify that the substitution or replacement of an acquired credit 
card account does not constitute an ``account opening'' for purposes of 
Sec.  226.55(b)(3)(iii). Thus, in these circumstances, the prohibition 
in Sec.  226.55(b)(3)(iii) would not apply. However, when a 
substitution, replacement or consolidation occurs during the first year 
after account opening, proposed comment 55(b)(3)-3.ii.B would clarify 
that the card issuer may not increase an annual percentage rate, fee, 
or charge in a manner otherwise prohibited by Sec.  226.55.\31\
---------------------------------------------------------------------------

    \31\ For example, assume that, on January 1 of year one, a 
consumer opens a credit card account with a purchase rate of 15%. On 
July 1 of year one, the account is replaced with a credit card 
account issued by the same card issuer, which offers different 
features (such as rewards on purchases). Under these circumstances, 
the card issuer could not increase the annual percentage rate for 
purchases to a rate that is higher than 15% pursuant to Sec.  
226.55(b)(3) until January 1 of year two (which is one year after 
the first account was opened).
---------------------------------------------------------------------------

    Proposed comment 55(b)(3)-4 provides illustrative examples of the 
application of the exception in proposed Sec.  226.55(b)(3). Proposed 
comment 55(b)(3)-5 contains a cross-reference to proposed comment 
55(c)(1)-3, which clarifies the circumstances in which increased fees 
and charges required to be disclosed under Sec.  226.6(b)(2)(ii), 
(b)(2)(iii), or (b)(2)(xii) may be imposed consistent with Sec.  
226.55.
55(b)(4) Delinquency Exception
    Revised TILA Section 171(b)(4) permits a creditor to increase an 
annual percentage rate, fee, or finance charge ``due solely to the fact 
that a minimum payment by the [consumer] has not been received by the 
creditor within 60 days after the due date for such payment.'' However, 
this exception is subject to two conditions. First, revised Section 
171(b)(4)(A) provides that the notice of the increase must include ``a 
clear and conspicuous written statement of the reason for the increase 
and that the increase will terminate not later than 6 months after the 
date on which it is imposed, if the creditor receives the required 
minimum payments on time from the [consumer] during that period.'' 
Second, revised Section 171(b)(4)(B) provides that the creditor must 
``terminate [the] increase not later than 6 months after the date on 
which it is imposed, if the creditor receives the required minimum 
payments on time during that period.''
    The Board proposes to implement this exception in Sec.  
226.55(b)(4). The additional notice requirements in revised TILA 
Section 171(b)(4)(A) are set forth in proposed Sec.  226.55(b)(4)(i). 
The requirement in revised Section 171(b)(4)(B) that the increase be 
terminated if the card issuer receives timely payments during the six 
months following the increase is implemented in proposed Sec.  
226.55(b)(4)(ii), although the Board proposes three adjustments to the 
statutory requirement pursuant to its authority under TILA Section 
105(a).
    First, proposed Sec.  226.55(b)(4)(ii) interprets the requirement 
that the

[[Page 54174]]

creditor ``terminate'' the increase as a requirement that the card 
issuer reduce the annual percentage rate, fee, or charge to the rate, 
fee, or charge that applied prior to the increase. The Board believes 
that this interpretation is consistent with the intent of revised TILA 
Section 171(b)(4)(B) insofar as the effect of the increase will be 
undone. The Board does not interpret revised TILA Section 171(b)(4)(B) 
to require the card issuer to refund or credit the account for amounts 
charged as a result of the increase prior to the termination.
    Second, for clarity, proposed Sec.  226.55(b)(4)(ii) provides that 
the card issuer must reduce the annual percentage rate, fee, or charge 
after receiving six consecutive required minimum periodic payments on 
or before the payment due date beginning with the first payment due 
following the effective date of the increase. The Board believes that 
shifting the focus from months to minimum payments provides more 
specificity and clarity for both consumers and card issuers as to what 
is required to obtain the reduction. Furthermore, the Board believes 
that limiting this requirement to the period immediately following the 
increase is consistent with revised TILA Section 171(b)(4)(B), which 
requires a creditor to terminate an increase ``6 months after the date 
on which it is imposed, if the creditor receives the required minimum 
payments on time during that period.'' Thus, as clarified in proposed 
comment 55(b)(4)-3 (which is discussed below), proposed Sec.  
226.55(b)(4)(ii) would not require a card issuer to terminate an 
increase if, at some later point in time, the card issuer receives six 
consecutive required minimum periodic payments on or before the payment 
due date.
    Third, proposed Sec.  226.55(b)(4)(ii) provides that the card 
issuer must also reduce the annual percentage rate, fee, or charge with 
respect to transactions that occurred within fourteen days after 
provision of the Sec.  226.9(c) or (g) notice. This requirement is 
consistent with the definition of ``outstanding balance'' in revised 
TILA Section 171(d), as applied in proposed Sec.  226.55(b)(1)(ii)(B) 
and proposed Sec.  226.55(b)(3)(ii).
    Proposed comment 55(b)(4)-1 clarifies that, in order to satisfy the 
condition in Sec.  226.55(b)(4) that the card issuer has not received 
the consumer's required minimum periodic payment within 60 days after 
the payment due date, a card issuer that requires monthly minimum 
payments generally must not have received two consecutive minimum 
payments. The comment further clarifies that whether a required minimum 
periodic payment has been received for purposes of Sec.  226.55(b)(4) 
depends on whether the amount received is equal to or more than the 
first outstanding required minimum periodic payment. The comment 
provides the following example: Assume that the required minimum 
periodic payments for a credit card account are due on the fifteenth 
day of the month. On May 13, the card issuer has not received the $50 
required minimum periodic payment due on March 15 or the $150 required 
minimum periodic payment due on April 15. If the card issuer receives a 
$50 payment on May 14, Sec.  226.55(b)(4) does not apply because the 
payment is equal to the required minimum periodic payment due on March 
15 and therefore the account is not more than 60 days delinquent. 
However, if the card issuer instead received a $40 payment on May 14, 
Sec.  226.55(b)(4) would apply because the payment is less than the 
required minimum periodic payment due on March 15. Furthermore, if the 
card issuer received the $50 payment on May 15, Sec.  226.55(b)(4) 
would apply because the card issuer did not receive the required 
minimum periodic payment due on March 15 within 60 days after the due 
date for that payment.
    As discussed above, proposed Sec.  226.9(g)(3)(i)(B) would require 
that the written notice provided to consumers 45 days before an 
increase in rate due to delinquency or default or as a penalty include 
the information required by revised Section 171(b)(4)(A). Accordingly, 
proposed comment 55(b)(4)-2 clarifies that a card issuer that has 
complied with the disclosure requirements in Sec.  226.9(g)(3)(i)(B) 
has also complied with the disclosure requirements in Sec.  
226.55(b)(4)(i).
    Proposed comment 55(b)(4)-3 clarifies the requirements in Sec.  
226.55(b)(4)(ii) regarding the reduction of annual percentage rates, 
fees, or charges that have been increased pursuant to Sec.  
226.55(b)(4). First, as discussed above, the comment clarifies that 
Sec.  226.55(b)(4)(ii) does not apply if the card issuer does not 
receive six consecutive required minimum periodic payments on or before 
the payment due date beginning with the payment due immediately 
following the effective date of the increase, even if, at some later 
point in time, the card issuer receives six consecutive required 
minimum periodic payments on or before the payment due date.
    Second, the comment states that, although Sec.  226.55(b)(4)(ii) 
requires the card issuer to reduce an annual percentage rate, fee, or 
charge increased pursuant to Sec.  226.55(b)(4) to the annual 
percentage rate, fee, or charge that applied prior to the increase, 
this provision does not prohibit the card issuer from applying an 
increased annual percentage rate, fee, or charge consistent with any of 
the other exceptions in Sec.  226.55(b). For example, if a temporary 
rate applied prior to the Sec.  226.55(b)(4) increase and the temporary 
rate expired before a reduction in rate pursuant to Sec.  226.55(b)(4), 
the card issuer may apply an increased rate to the extent consistent 
with Sec.  226.55(b)(1). Similarly, if a variable rate applied prior to 
the Sec.  226.55(b)(4) increase, the card issuer may apply any increase 
in that variable rate to the extent consistent with Sec.  226.55(b)(2). 
This is consistent with proposed Sec.  226.55(b), which provides that a 
card issuer may increase an annual percentage rate or a fee or charge 
required to be disclosed under Sec.  226.6(b)(2)(ii), (b)(2)(iii), or 
(b)(2)(xii) pursuant to one of the exceptions in Sec.  226.55(b) even 
if that increase would not be permitted under a different exception.
    Third, the comment states that, if Sec.  226.55(b)(4)(ii) requires 
a card issuer to reduce an annual percentage rate, fee, or charge on a 
date that is not the first day of a billing cycle, the card issuer may 
delay application of the reduced rate, fee, or charge until the first 
day of the following billing cycle. This is consistent with proposed 
comment 55(b)-2, which clarifies that a card issuer may delay 
application of an increase in a rate, fee, or charge until the start of 
the next billing cycle without relinquishing its ability to apply that 
rate, fee, or charge. Finally, the comment provides examples 
illustrating the application of Sec.  226.55(b)(4)(ii).
55(b)(5) Workout and Temporary Hardship Arrangement Exception
    Revised TILA Section 171(b)(3) permits a creditor to increase an 
annual percentage rate, fee, or finance charge ``due to the completion 
of a workout or temporary hardship arrangement by the [consumer] or the 
failure of a [consumer] to comply with the terms of a workout or 
temporary hardship arrangement.'' However, like the exception for 
delinquencies of more than 60 days in revised TILA Section 171(b)(4), 
this exception is subject to two conditions. First, revised Section 
171(b)(3)(A) provides that ``the annual percentage rate, fee, or 
finance charge applicable to a category of transactions following any 
such increase does not exceed the rate, fee, or finance charge that 
applied to that category of transactions prior to commencement of the 
arrangement.'' Second, revised Section 171(b)(3)(B) provides that the 
creditor must have ``provided the

[[Page 54175]]

[consumer], prior to the commencement of such arrangement, with clear 
and conspicuous disclosure of the terms of the arrangement (including 
any increases due to such completion or failure).''
    The Board proposes to implement this exception in Sec.  
226.55(b)(5). The notice requirements in revised Section 171(b)(3)(B) 
are set forth in proposed Sec.  226.55(b)(5)(i). The limitation on 
increases following completion or failure of a workout or temporary 
hardship arrangement is set forth in proposed Sec.  226.55(b)(5)(ii).
    Proposed comment 55(b)(5)-1 clarifies that nothing in Sec.  
226.55(b)(5) permits a card issuer to alter the requirements of Sec.  
226.55 pursuant to a workout or temporary hardship arrangement. For 
example, a card issuer cannot increase an annual percentage rate or a 
fee or charge required to be disclosed under Sec.  226.6(b)(2)(ii), 
(b)(2)(iii), or (b)(2)(xii) pursuant to a workout or temporary hardship 
arrangement unless otherwise permitted by Sec.  226.55. In addition, a 
card issuer cannot require the consumer to make payments with respect 
to a protected balance that exceed the payments permitted under Sec.  
226.55(c).\32\
---------------------------------------------------------------------------

    \32\ The definition of ``protected balance'' and the permissible 
repayment methods for such a balance are discussed in detail below 
with respect to proposed Sec.  226.55(c).
---------------------------------------------------------------------------

    Proposed comment 55(b)(5)-2 clarifies that a card issuer that has 
complied with the disclosure requirements in Sec.  226.9(c)(2)(v)(D) 
has also complied with the disclosure requirements in Sec.  
226.55(b)(5)(i). The comment also contains a cross-reference to 
proposed comment 9(c)(2)(v)-8, which the Board adopted in the July 2009 
Regulation Z Interim Final Rule to clarify the terms a creditor is 
required to disclose prior to commencement of a workout or temporary 
hardship arrangement for purposes of Sec.  226.9(c)(2)(v)(D), which is 
an exception to the general requirement that a creditor provide 45 days 
advance notice of an increase in annual percentage rate. See 74 FR 
36099. Because the disclosure requirements in Sec.  226.9(c)(2)(v)(D) 
and proposed Sec.  226.55(b)(5)(i) implement the same statutory 
provision (revised TILA Section 171(b)(3)(B)), the Board believes a 
single set of disclosures should satisfy the requirements of all three 
provisions.
    Similar to the commentary to proposed Sec.  226.55(b)(4), proposed 
comment 55(b)(5)-3 states that, although the card issuer may not apply 
an annual percentage rate, fee, or charge to transactions that occurred 
prior to commencement of the arrangement that exceeds the rate, fee, or 
charge that applied to those transactions prior to commencement of the 
arrangement, Sec.  226.55(b)(5)(ii) does not prohibit the card issuer 
from applying an increased rate, fee, or charge upon completion or 
failure of the arrangement to the extent consistent with any of the 
other exceptions in Sec.  226.55(b) (such as an increase in a variable 
rate consistent with proposed Sec.  226.55(b)(2)). Finally, proposed 
comment 55(b)(5)-4 provides illustrative examples of the application of 
this exception.
55(b)(6) Servicemembers Civil Relief Act Exception
    The Board proposes to use its authority under TILA Section 105(a) 
to clarify the relationship between the general prohibition on 
increasing annual percentage rates in revised TILA Section 171 and 
certain provisions of the Servicemembers Civil Relief Act (SCRA), 50 
U.S.C. app. 501 et seq. Specifically, 50 U.S.C. app. 527(a)(1) provides 
that ``[a]n obligation or liability bearing interest at a rate in 
excess of 6 percent per year that is incurred by a servicemember, or 
the servicemember and the servicemember's spouse jointly, before the 
servicemember enters military service shall not bear interest at a rate 
in excess of 6 percent. * * *'' With respect to credit card accounts, 
this restriction applies during the period of military service. See 50 
U.S.C. app. 527(a)(1)(B).\33\
---------------------------------------------------------------------------

    \33\ 50 U.S.C. app. 527(a)(1)(B) applies to obligations or 
liabilities that do not consist of a mortgage, trust deed, or other 
security in the nature of a mortgage.
---------------------------------------------------------------------------

    Under revised TILA Section 171, a creditor that complies with the 
SCRA by lowering the annual percentage rate that applies to an existing 
balance on a credit card account when the consumer enters military 
service arguably would not be permitted to increase the rate for that 
balance once the period of military service ends and the protections of 
the SCRA no longer apply. In May 2009, the Board and the other Agencies 
proposed to create an exception to the general prohibition in the 
January 2009 FTC Act Rule on applying increased rates to existing 
balances for these circumstances, provided that the increased rate does 
not exceed the rate that applied prior to the period of military 
service. See 12 CFR 227.24(b)(6), 74 FR 20814; see also 74 FR 20812. 
Revised TILA Section 171 does not contain a similar exception. However, 
the Board does not believe that Congress intended to prohibit creditors 
from returning an annual percentage rate that has been reduced by 
operation of the SCRA to its pre-military service level once the SCRA 
no longer applies. Accordingly, the Board proposes to create Sec.  
226.55(b)(6), which states that, if an annual percentage rate has been 
decreased pursuant to the SCRA, a card issuer may increase that annual 
percentage rate once the SCRA no longer applies. However, the card 
issuer would not be permitted to apply an annual percentage rate to any 
transactions that occurred prior to the decrease that exceeds the rate 
that applied to those transactions prior to the decrease. Furthermore, 
because the Board believes that a consumer leaving military service 
should receive 45 days advance notice of this increase in rate, the 
Board has not proposed a corresponding exception to Sec.  226.9.
    Proposed comment 55(b)(6)-1 clarifies that, although Sec.  
226.55(b)(6) requires the card issuer to apply to any transactions that 
occurred prior to a decrease in annual percentage rate pursuant to 50 
U.S.C. app. 527 a rate that does not exceed the rate that applied to 
those transactions prior to the decrease, the card issuer may apply an 
increased rate once 50 U.S.C. app 527 no longer applies, to the extent 
consistent with any of the other exceptions in Sec.  226.55(b). For 
example, if the rate that applied prior to the decrease was a variable 
rate, the card issuer may apply any increase in that variable rate to 
the extent consistent with Sec.  226.55(b)(2). This comment mirrors 
similar commentary to proposed Sec.  226.55(b)(4) and (b)(5). An 
illustrative example is provided in proposed comment 26(b)(6)-2.
55(c) Treatment of Protected Balances
    Revised TILA Section 171(c)(1) states that ``[t]he creditor shall 
not change the terms governing the repayment of any outstanding 
balance, except that the creditor may provide the [consumer] with one 
of the methods described in [revised Section 171(c)(2)] * * * or a 
method that is no less beneficial to the [consumer] than one of those 
methods.'' Revised TILA Section 171(c)(2) lists two methods of repaying 
an outstanding balance: First, an amortization period of not less than 
five years, beginning on the effective date of the increase set forth 
in the Section 127(i) notice; and, second, a required minimum periodic 
payment that includes a percentage of the outstanding balance that is 
equal to not more than twice the percentage required before the 
effective date of the increase set forth in the Section 127(i) notice.
    For clarity, proposed Sec.  226.55(c)(1) defines the balances 
subject to the

[[Page 54176]]

protections in revised TILA Section 171(c) as ``protected balances.'' 
Under this definition, a ``protected balance'' is the amount owed for a 
category of transactions to which an increased annual percentage rate 
or an increased fee or charge required to be disclosed under Sec.  
226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) cannot be applied after 
the annual percentage rate, fee, or charge for that category of 
transactions has been increased pursuant to Sec.  226.55(b)(3). For 
example, when a card issuer notifies a consumer of an increase in the 
annual percentage rate that applies to new purchases pursuant to Sec.  
226.9(c), the protected balance is the purchase balance at the end of 
the fourteenth day after provision of the notice. See Sec.  
226.55(b)(3)(ii). The Board and the other Agencies adopted a similar 
definition in the January 2009 FTC Act Rule. See 12 CFR 227.24(c), 74 
FR 5560; see also 74 FR 5532.
    Proposed comment 55(c)(1)-1 would provide an illustrative example 
of a protected balance. Proposed comment 55(c)(1)-2 would clarify that, 
because Sec.  226.55(b)(3)(iii) does not permit a card issuer to 
increase an annual percentage rate or a fee or charge required to be 
disclosed under Sec.  226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) 
during the first year after account opening, Sec.  226.55(c) does not 
apply to balances during the first year after account opening.
    Proposed comment 55(c)(1)-3 clarifies that, although Sec.  
226.55(b)(3) does not permit a card issuer to apply an increased fee or 
charge required to be disclosed under Sec.  226.6(b)(2)(ii), 
(b)(2)(iii), or (b)(2)(xii) to a protected balance, a card issuer is 
not prohibited from increasing a fee or charge that applies to the 
account as a whole or to balances other than the protected balance. For 
example, a card issuer may add a new annual or a monthly maintenance 
fee to an account or increase such a fee so long as the fee is not 
based solely on the protected balance. However, if the consumer rejects 
an increase in a fee or charge pursuant to Sec.  226.9(h), the card 
issuer is prohibited from applying the increased fee or charge to the 
account and from imposing any other fee or charge solely as a result of 
the rejection. See Sec.  226.9(h)(2)(i) and (ii); comment 9(h)(2)(ii)-
2.
    Proposed Sec.  226.55(c)(2) implements the restrictions on 
accelerating the repayment of protected balances in revised TILA 
Section 171(c). As discussed above with respect to Sec.  226.9(h), the 
Board previously implemented these restrictions in the July 2009 
Regulation Z Interim Final Rule as Sec.  226.9(h)(2)(iii). However, for 
clarity and consistency, the Board proposes to move these restrictions 
to proposed Sec.  226.55(c)(2). Proposed Sec.  226.55(c)(2) is 
consistent with current Sec.  226.9(h)(2)(iii), except that the 
repayment methods in Sec.  226.55(c)(2) focus on the effective date of 
the increase (rather than the date on which the card issuer is notified 
of the rejection pursuant to Sec.  226.9(h)).
    Similarly, for the reasons discussed above with respect to Sec.  
226.9(h), the Board proposes to move the commentary clarifying the 
application of these repayment methods from current Sec.  
226.9(h)(2)(iii) to Sec.  226.55(c) and to adjust that commentary for 
consistency with Sec.  226.55(c). In addition, proposed comment 
55(c)(2)(iii)-1 would clarify that, although Sec.  226.55(c)(2)(iii) 
limits the extent to which the portion of the required minimum periodic 
payment based on the protected balance may be increased, it does not 
limit or otherwise address the creditor's ability to determine the 
amount of the required minimum periodic payment based on other balances 
on the account or to apply that portion of the minimum payment to the 
balances on the account. Proposed comment 55(c)(2)(iii)-2 would provide 
an illustrative example.
55(d) Continuing Application of Sec.  226.55
    Pursuant to its authority under TILA Section 105(a), the Board 
proposes to adopt Sec.  226.55(d), which provides that the limitations 
in Sec.  226.55 continue to apply to a balance on a credit card account 
after the account is closed or acquired by another card issuer or the 
balance is transferred from a credit card account issued by a card 
issuer to another credit account issued by the same card issuer or its 
affiliate or subsidiary (unless the account to which the balance is 
transferred is subject to Sec.  226.5b). This provision is based on 
commentary to the January 2009 FTC Act Rule proposed by the Board and 
the other Agencies in May 2009, primarily in response to concerns that 
permitting card issuers to apply an increased rate to an existing 
balance in these circumstances could lead to circumvention of the 
general prohibition on such increases. See 12 CFR 227.21 comments 
21(c)-1 through -3, 74 FR 20814-20815; see also 74 FR 20805-20807.
    Because the protections in revised TILA Section 171 and new TILA 
Section 172 cannot be waived or forfeited, proposed Sec.  226.55(d) 
does not distinguish between closures or transfers initiated by the 
card issuer and closures or transfers initiated by the consumer. 
Although there may be circumstances in which individual consumers could 
make informed choices about the benefits and costs of waiving the 
protections in revised Section 171 and new Section 172, an exception 
for those circumstances would create a significant loophole that could 
be used to deny the protections to other consumers. For example, if a 
card issuer offered to transfer its cardholder's existing balance to a 
credit product that would reduce the rate on the balance for a period 
of time in exchange for the cardholder accepting a higher rate after 
that period, the cardholder would have to determine whether the savings 
created by the temporary reduction would offset the cost of the 
subsequent increase, which would depend on the amount of the balance, 
the amount and length of the reduction, the amount of the increase, and 
the length of time it would take the consumer to pay off the balance at 
the increased rate. Based on extensive consumer testing conducted 
during the preparation of the January 2009 Regulation Z Rule and the 
January 2009 FTC Act Rule, the Board believes that it would be very 
difficult to ensure that card issuers disclosed this information in a 
manner that will enable most consumers to make informed decisions about 
whether to accept the increase in rate. Although some approaches to 
disclosure may be effective, others may not and it would be impossible 
to distinguish among such approaches in a way that would provide clear 
guidance for card issuers. Furthermore, consumers might be presented 
with choices that are not meaningful (such as a choice between 
accepting a higher rate on an existing balance or losing credit 
privileges on the account).
    Proposed 226.55(d)(1) provides that Sec.  226.55 continues to apply 
to a balance on a credit card account after the account is closed or 
acquired by another card issuer. In some cases, the acquiring 
institution may elect to close the acquired account and replace it with 
its own credit card account. See comment 12(a)(2)-3. The acquisition of 
an account does not involve any choice on the part of the consumer, and 
the Board believes that consumers whose accounts are acquired should 
receive the same level of protection against increases in annual 
percentage rates after acquisition as they did beforehand.\34\ Proposed

[[Page 54177]]

comment 55(d)-1 clarifies that Sec.  226.55 continues to apply 
regardless of whether the account is closed by the consumer or the card 
issuer and provides illustrative examples of the application of Sec.  
226.55(d)(1). Proposed comment 55(d)-2 clarifies the application of 
Sec.  226.55(d)(1) to circumstances in which a card issuer acquires a 
credit card account with a balance by, for example, merging with or 
acquiring another institution or by purchasing another institution's 
credit card portfolio.
---------------------------------------------------------------------------

    \34\ Thus, as discussed in the proposed commentary to Sec.  
226.55(b)(2), a card issuer that acquires a credit card account with 
a balance to which a variable rate applies would not be permitted to 
substitute a new index for the index used to determine the variable 
rate if the change could result in an increase in the annual 
percentage rate. However, the proposed commentary to Sec.  
226.55(b)(2) does clarify that a card issuer that does not utilize 
the index used to determine the variable rate for an acquired 
balance may convert that rate to an equal or lower non-variable 
rate, subject to the notice requirements of Sec.  226.9(c).
---------------------------------------------------------------------------

    Proposed 226.55(d)(2) provides that Sec.  226.55 continues to apply 
to a balance on a credit card account after the balance is transferred 
from a credit card account issued by a card issuer to another credit 
account issued by the same card issuer or its affiliate or subsidiary 
(unless the account to which the balance is transferred is subject to 
Sec.  226.5b). Proposed comment 55(d)-3.i provides examples of 
circumstances in which balances may be transferred from one credit card 
account issued by a card issuer to another credit card account issued 
by the same card issuer (or its affiliate or subsidiary), such as when 
the consumer's account is converted from a retail credit card that may 
only be used at a single retailer or an affiliated group of retailers 
to a co-branded general purpose credit card which may be used at a 
wider number of merchants. Because of the concerns discussed above 
regarding circumvention and informed consumer choice and for 
consistency with the issuance rules regarding card renewals or 
substitutions for accepted credit cards under Sec.  226.12(a)(2), the 
Board believes--and proposed Sec.  226.55(d)(2) provides--that these 
transfers should be treated as a continuation of the existing account 
relationship rather than the creation of a new account relationship. 
See comment 12(a)(2)-2.
    Proposed Sec.  226.55(d)(2) does not apply to balances transferred 
from a credit card account issued by a card issuer to a credit account 
issued by the same card issuer (or its affiliate or subsidiary) that is 
subject to Sec.  226.5b (which applies to open-end credit plans secured 
by the consumer's dwelling). The Board believes that excluding 
transfers to such accounts is appropriate because Sec.  226.5b provides 
protections that are similar to--and, in some cases, more stringent 
than--the protections in Sec.  226.55. For example, a card issuer may 
not change the annual percentage rate on a home-equity plan unless the 
change is based on an index that is not under the card issuer's control 
and is available to the general public. See 12 CFR 226.5b(f)(1).
    Proposed comment 55(d)-3.ii clarifies that, when a consumer chooses 
to transfer a balance to a credit card account issued by a different 
card issuer, Sec.  226.55 does not prohibit the card issuer to which 
the balance is transferred from applying its account terms to that 
balance, provided those terms comply with 12 CFR part 226. For example, 
if a credit card account issued by card issuer A has a $1,000 purchase 
balance at an annual percentage rate of 15% and the consumer transfers 
that balance to a credit card account with a purchase rate of 17% 
issued by card issuer B, card issuer B may apply the 17% rate to the 
$1,000 balance. However, card issuer B may not subsequently increase 
the rate that applies to that balance unless permitted by one of the 
exceptions in Sec.  226.55(b).
    Although balance transfers from one card issuer to another raise 
some of the same concerns as balance transfers involving the same card 
issuer, the Board believes that transfers between card issuers are not 
contrary to the intent of revised TILA Section 171 and proposed Sec.  
226.55 because the card issuer to which the balance is transferred is 
not increasing the cost of credit it previously extended to the 
consumer. For example, assume that card issuer A has extended a 
consumer $1,000 of credit at a rate of 15%. Because proposed Sec.  
226.55 generally prohibits card issuer A from increasing the rate that 
applies to that balance, it would be inconsistent with Sec.  226.55 to 
allow card issuer A to reprice that balance simply by transferring it 
to another of its accounts. In contrast, in order for the $1,000 
balance to be transferred to card issuer B, card issuer B must provide 
the consumer with a new $1,000 extension of credit in an arms-length 
transaction and should be permitted to price that new extension 
consistent with its evaluation of prevailing market rates, the risk 
presented by the consumer, and other factors. Thus, the transfer from 
card issuer A to card issuer B does not appear to raise concerns about 
circumvention of proposed Sec.  226.55 because card issuer B is not 
increasing the cost of credit it previously extended.
    The Board understands from comments on the May 2009 proposal that 
drawing this distinction between balance transfers involving the same 
card issuer and balance transfers involving different card issuers may 
limit a card issuer's ability to offer its existing cardholders the 
same terms that it would offer another issuer's cardholders. As noted 
in that proposal, however, the Board understands that currently card 
issuers generally do not make promotional balance transfer offers 
available to their existing cardholders for balances held by the issuer 
because it is not cost-effective to do so. Furthermore, although many 
card issuers do offer existing cardholders the opportunity to upgrade 
to accounts offering different terms or features (such as upgrading to 
an account that offers a particular type of rewards), the Board 
understands that these offers generally are not conditioned on a 
balance transfer, which indicates that it may be cost-effective for 
card issuers to make these offers without repricing an existing 
balance. Nevertheless, the Board again solicits comment on the extent 
to which proposed Sec.  226.55(d)(2) would affect card issuers' ability 
to make offers to their own cardholders.

Section 226.56 Requirements for Over-the-Limit Transactions

    When a consumer seeks to engage in a credit card transaction that 
may cause his or her credit limit to be exceeded, the creditor may, at 
its discretion, authorize the over-the-limit transaction. If the 
creditor pays an over-the-limit transaction, the consumer is typically 
assessed a fee or charge for the service.\35\ In addition, the over-
the-limit transaction may also be considered a default under the terms 
of the credit card agreement and trigger a rate increase, in some cases 
up to the default, or penalty, rate on the account.\36\
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    \35\ According to the GAO, the average over-the-limit fee 
assessed by issuers in 2005 was $30.81, an increase of 138 percent 
since 1995. See Credit Cards: Increased Complexity in Rates and Fees 
Heightens Need for More Effective Disclosures to Consumers, GAO 
Report 06-929, at 20 (September 2006) (citing data reported by 
CardWeb.com). The GAO also reported that among cards issued by the 
six largest issuers in 2005, most charged an over-the-limit fee 
amount between $35 and $39. Id. at 21.
    \36\ See id. at 25.
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    The Credit Card Act adds new TILA Section 127(k) and requires a 
creditor to obtain a consumer's express election, or opt-in, before the 
creditor may impose any fees on a consumer's credit card account for 
making an extension of credit that exceeds the consumer's credit limit. 
15 U.S.C. 1637(k). TILA Section 127(k)(2) further provides that no 
election shall take effect unless the consumer, before making such 
election, has received a notice from the creditor of any fees that may 
be assessed for an over-the-limit transaction. If the consumer opts in 
to the service, the creditor is also required to provide

[[Page 54178]]

notice of the consumer's right to revoke that election on any periodic 
statement that reflects the imposition of an over-the-limit fee during 
the relevant billing cycle. The Board is proposing to implement the 
over-the-limit consumer consent requirements in Sec.  226.56.
    The Credit Card Act directs the Board to issue rules governing the 
disclosures required by TILA Section 127(k), including rules regarding 
(i) the form, manner and timing of the initial opt-in notice and (ii) 
the form of the subsequent notice describing how an opt-in may be 
revoked. See TILA Section 127(k)(2). In addition, the Board must 
prescribe rules to prevent unfair or deceptive acts or practices in 
connection with the manipulation of credit limits designed to increase 
over-the-limit fees or other penalty fees. See TILA Section 
127(k)(5)(B).
56(a) Definition
    Proposed Sec.  226.56(a) defines ``over-the-limit transaction'' to 
mean any extension of credit by a creditor to complete a transaction 
that causes a consumer's credit card account balance to exceed the 
consumer's credit limit. The proposed term is limited to extensions of 
credit required to complete a transaction that has been requested by a 
consumer (for example, to make a purchase at a point of sale or on-
line, or to transfer a balance from another account). The term is not 
intended to cover the assessment of fees or interest charges by the 
creditor that may cause the consumer to exceed the credit limit. See, 
however, proposed Sec.  226.56(j)(4), discussed below.
56(b) Opt-In Requirement
    General rule. Proposed Sec.  226.56(b)(1) sets forth the general 
rule prohibiting a creditor from assessing a fee or charge on a 
consumer's account for paying an over-the-limit transaction unless the 
consumer is given notice and a reasonable opportunity to affirmatively 
consent, or opt in, to the creditor's payment of over-the-limit 
transactions and the consumer has opted in. If the consumer 
affirmatively consents, or ``opts in,'' to the service, the creditor 
must provide the consumer notice of the right to revoke that consent 
after assessing an over-the-limit fee or charge on the consumer's 
account.
    Under the proposed rule, the creditor may provide the opt-in notice 
orally, electronically, or in writing. Compliance with the consumer 
consent provisions or other requirements necessary to provide consumer 
disclosures electronically pursuant to the E-Sign Act would not be 
required if the creditor elects to provide the opt-in notice 
electronically. See also proposed Sec.  226.5(a)(1)(ii)(A). However, as 
discussed below under proposed Sec.  226.56(d)(1)(ii), before the 
consumer may consent orally or electronically, the creditor must also 
have provided the opt-in notice immediately prior to and 
contemporaneously with obtaining that consent. In addition, while the 
opt-in notice may be provided orally, electronically, or in writing, 
the revocation notice must be provided to the consumer in writing, 
consistent with the statutory requirement that such notice appear on 
the periodic statement reflecting the assessment of an over-the-limit 
fee or charge on the consumer's account. See TILA Section 127(k)(2), 
and proposed Sec.  226.56(d)(2), discussed below.
    The proposed notice and opt-in requirements would apply only to 
credit card accounts under an open-end (not home-secured) consumer 
credit plan, and would therefore not apply to credit cards that access 
a home equity line of credit or to debit cards linked to an overdraft 
line of credit. See proposed Sec.  226.2(a)(15)(ii). Although creditors 
must obtain consumer consent before any over-the-limit fees or charges 
are assessed on a consumer's account, the rule would not require that 
the creditor obtain the consumer's separate consent for each extension 
of credit that causes the consumer to exceed his or her credit limit. 
Such an approach is not compelled by the Credit Card Act. Proposed 
comment 56(b)-1 also explains, however, that even if a consumer has 
affirmatively consented or opted in to a creditor's over-the-limit 
service, the creditor is not required or obligated to pay or authorize 
any over-the-limit transactions.
    Proposed comment 56(b)-2 clarifies that a creditor that has a 
policy and practice of declining to pay or authorize any transactions 
that the creditor reasonably believes would cause the consumer to 
exceed the credit limit is not subject to the requirements of this 
section and would therefore not be required to provide the consumer 
notice or an opt-in right. This ``reasonable belief'' standard 
recognizes that creditors generally do not have real-time information 
regarding a consumer's prior transactions or credits that may have 
posted to the consumer's credit card account. As discussed below in 
proposed Sec.  226.56(b)(2), however, that if an over-the-limit 
transaction is paid without the consumer providing affirmative consent, 
the institution would not be permitted to charge a fee for paying the 
transaction.
    Proposed comment 56(b)-3 provides that the opt-in requirement 
applies whether a creditor assesses over-the-limit fees or charges on a 
per transaction basis or as a periodic account or maintenance fee that 
is imposed each cycle for the creditor's payment of over-the-limit 
transactions regardless of whether the consumer has exceeded the credit 
limit during a particular cycle (for example, a monthly ``over-the-
limit protection'' fee).
    As further discussed below, the proposal would require creditors to 
obtain consumer consent for all credit card accounts, including those 
opened prior to the effective date of the rule, before the creditor 
could assess any fees or charges on a consumer's account for paying 
over-the-limit transactions.
    Reasonable opportunity to opt in. Proposed Sec.  226.56(b)(1)(ii) 
requires a creditor to provide a reasonable opportunity for the 
consumer to affirmatively consent to the creditor's payment of over-
the-limit transactions. TILA Section 127(k)(3) provides that the 
consumer's affirmative consent (and revocation) may be completed 
orally, electronically, or in writing, pursuant to regulations 
prescribed by the Board. See also proposed Sec.  226.56(e), discussed 
below. Proposed comment 56(b)-4 contains examples to illustrate what 
would constitute providing a consumer a reasonable opportunity to 
affirmatively consent using the specified methods.
    The first example provides that a creditor may include the notice 
on an application form that a consumer may fill out to request the 
service as part of the application process. See proposed comment 56(b)-
4.i. Alternatively, after the consumer has been approved for the card, 
the creditor could provide a form with the account-opening disclosures 
that can be filled out separately and mailed to affirmatively request 
the service. See proposed comment 56(b)-4.ii and proposed Model Form G-
25(A) in Appendix G, discussed below.
    Proposed comment 56(b)-4.iii illustrates that a creditor may obtain 
consumer consent through a readily available telephone line. Proposed 
comment 56(b)-4.iv illustrates that a creditor may provide an 
electronic means for the consumer to affirmatively consent. For 
example, a creditor could provide a form on its Web site that enables 
the consumer to check a box to indicate his or her agreement to the 
over-the-limit service and confirm that opt-in choice by clicking on a 
consent box. See also proposed Sec.  226.56(d)(1)(ii) (requiring the 
opt-in notice to be provided immediately prior to and contemporaneous 
with the consumer's consent).

[[Page 54179]]

    Comment is requested regarding whether creditors should be required 
to segregate the opt-in notice from other account disclosures. Such a 
requirement may ensure that the information is not obscured within 
other account documents and overlooked by the consumer, for example, in 
preprinted language in the account-opening disclosures, leading the 
consumer to inadvertently consent to having over-the-limit transactions 
paid or authorized by the creditor.
    Notwithstanding the manner in which notice of the opt-in right may 
be provided, proposed comment 56(b)-5 would clarify that the consumer's 
consent must be obtained separately from other consents or 
acknowledgments provided by the consumer. For example, a consumer's 
signature on an application for a credit card alone would not 
sufficiently evidence the consumer's consent to the creditor's payment 
of over-the-limit transactions. Under the proposal, the consumer must 
initial, sign, or otherwise make a separate request for the over-the-
limit service. However, the proposed comment would not preclude a 
creditor from including a separate check box or signature line for 
requesting the over-the-limit service in the signature block on a 
credit application, provided that the check box or signature is used 
solely to indicate the consumer's opt-in decision and not for any other 
purpose, such as to also obtain consumer consents for other account 
services or features. Under Regulation Z's record retention rules, 
creditors would be required to retain evidence of the consumer's 
consent or opt-in for a period of at least two years, regardless of the 
means by which consent is obtained. See Sec.  226.25.
    The Board also solicits comment on whether creditors should be 
required to provide the consumer with written confirmation once the 
consumer has opted in under proposed Sec.  226.56(b)(1)(iii) to verify 
that the consumer intended to make the election. In the case of 
telephone or in person requests in particular, written confirmation may 
be appropriate to evidence the consumer's intent to opt in to the 
service. A creditor could comply with such a requirement, for example, 
by sending a letter to the consumer acknowledging that the consumer has 
elected to opt in to the creditor's service, or, in the case of a 
mailed request, the creditor could provide a copy of the consumer's 
completed opt-in form.
    Payment of over-the-limit transactions where consumer has not opted 
in. Proposed Sec.  226.56(b)(2) provides that a creditor may pay an 
over-the-limit transaction even if the consumer has not provided 
affirmative consent, so long as the creditor does not impose a fee or 
charge for paying the transaction. Proposed comment 56(b)(2)-1 contains 
further guidance stating that the prohibition on imposing fees for 
paying an over-the-limit transaction where the consumer has not opted 
in applies even in circumstances where the creditor is unable to avoid 
paying a transaction that exceeds the consumer's credit limit. Nothing 
in the statute suggests that Congress intended to permit an exception 
to allow any over-the-limit fees to be charged in these circumstances 
absent consumer consent. Proposed comment 56(b)(2)-1 contains 
illustrative examples of this provision.
    For example, in some cases, a merchant may not submit a credit card 
transaction to the creditor for authorization. Such an event may occur, 
for instance, because the transaction is below the floor limits 
established by the card network rules requiring authorization or 
because the small dollar amount of the transaction does not pose 
significant payment risk to the merchant. If the transaction exceeds 
the consumer's credit limit, the creditor would not be permitted to 
assess an over-the-limit fee if the consumer has not consented to the 
creditor's payment of over-the-limit transactions.
    Similarly, the proposed rule does not permit the creditor to assess 
a fee for an over-the-limit transaction that occurs because the final 
transaction amount exceeds the amount submitted for authorization. For 
example, a consumer may use his or her credit card at a pay-at-the-pump 
fuel dispenser to purchase $50 of fuel. At the time of authorization, 
the gas station may request an authorization hold of $1 to verify the 
validity of the card. Even if the subsequent $50 transaction amount 
exceeds the consumer's credit limit, Sec.  226.56(b)(2) would prohibit 
the creditor from assessing an over-the-limit fee if the consumer has 
not opted in to the creditor's over-the-limit service.
    Proposed comment 56(b)(2)-2 clarifies that a creditor is not 
precluded from assessing other fees and charges unrelated to the 
payment of the over-the-limit transaction itself even where the 
consumer has not provided consent to the creditor's over-the-limit 
service, to the extent permitted under applicable law. For example, if 
a consumer has not opted in, a creditor could permissibly assess a 
balance transfer fee for a balance transfer, provided that such a fee 
is assessed whether or not the transfer exceeds the credit limit. The 
creditor could also continue to assess interest charges for the over-
the-limit transaction.\37\
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    \37\ The proposed rule does not prohibit a creditor from 
increasing the consumer's interest rate as a result of an over-the-
limit transaction, subject to the creditor's compliance with the 45-
day advance notice requirement in Sec.  226.9(g), the limitations on 
applying an increased rate to an existing balance in Sec.  226.55, 
and other provisions of the Credit Card Act.
---------------------------------------------------------------------------

56(c) Method of Election
    TILA Section 127(k)(2) provides that a consumer may make or revoke 
consent to permit over-the-limit transactions orally, electronically, 
or in writing, and directs the Board to prescribe rules to ensure that 
the same options are available for both making and revoking such 
election. Proposed Sec.  226.56(c) implements this requirement. 
Proposed comment 56(c)-1 clarifies that the creditor may determine the 
means by which consumers may provide affirmative consent. The creditor 
could decide, for example, whether to obtain consumer consents in 
writing, electronically, by telephone, or to offer some or all of these 
options. The proposed rule recognizes that creditors have a strong 
interest in facilitating a consumer's ability to opt in, and thus would 
permit them to determine the most effective means in obtaining such 
consent.
    Notwithstanding the creditor's choice(s), however, proposed Sec.  
226.56(c) requires that whatever method a creditor provides for 
obtaining consent, such method must be equally available to the 
consumer to revoke the prior consent. See TILA Section 127(k)(3). 
Proposed comment 56(c)-2 provides guidance that because consumer 
consent or revocation requests are not consumer disclosures for 
purposes of the E-Sign Act, creditors would not be required to comply 
with the consumer consent or other requirements for providing 
disclosures electronically pursuant to the E-Sign Act for consumer 
requests submitted electronically. Comment is requested whether the 
Board should require creditors to allow consumers to opt in and to 
revoke that consent using each of the three methods (that is, orally, 
electronically, and in writing).
56(d) Timing
    Proposed Sec.  226.56(d)(1)(i) establishes a general requirement 
that a creditor provide an opt-in notice before the creditor assesses 
any fee or charge on the consumer's account for paying an over-the-
limit transaction. For example, a creditor could include the notice as 
part of the credit card application. See proposed comment 56(b)-4.i.

[[Page 54180]]

Alternatively, the creditor could include the notice with other 
account-opening documents, either within the account-opening 
disclosures under Sec.  226.6 or in a stand-alone document. See 
proposed comment 56(b)-4.ii.
    The proposed rule would require that all consumers, including 
existing account holders, receive notice regarding the opt-in right if 
the creditor imposes a fee or charge for paying an over-the-limit 
transaction. The Board believes that had Congress intended to permit 
existing customers to continue to have over-the-limit transactions paid 
or authorized without their prior consent, it would have so specified. 
Nothing in the statute or the legislative history suggests that 
Congress intended that existing account holders should not have the 
same rights regarding consumer choice for over-the-limit transactions 
as those afforded to new customers. As a result, the proposal would 
apply the over-the-limit consumer consent requirements to credit card 
accounts opened prior to February 22, 2010.
    For credit card accounts opened prior to the effective date of the 
final rule, a creditor may elect to provide an opt-in notice to all of 
its account holders on or with the first periodic statement sent after 
the effective date of the final rule. Creditors that choose to do so 
would be prohibited from assessing any over-the-limit fees or charges 
after the effective date of the rule and prior to providing the opt-in 
notice, and subsequently could not assess any such fees or charges 
unless and until the consumer opts in.
    Comment is requested regarding whether a creditor should be 
permitted to obtain consumer consent for the payment of over-the-limit 
transactions prior to the effective date of the final rule and, if so, 
under what circumstances. Such an approach could allow creditors to 
phase in their processing of consumer opt-ins and alleviate the 
compliance burden that may otherwise occur if notices could not be 
sent, and opt-ins obtained until February 22, 2010.
    In addition to the general requirement that the creditor provide an 
opt-in notice prior to imposing any fee or charge for an over-the-limit 
transaction, proposed Sec.  226.56(d)(1)(ii) states that if the 
consumer decides to consent orally or electronically, the opt-in notice 
must be given by the creditor immediately before and contemporaneously 
with a consumer's election. For example, if a consumer calls the 
creditor to consent to the creditor's payment of over-the-limit 
transactions, the creditor must provide the opt-in notice immediately 
prior to obtaining the consumer's consent. This proposed requirement is 
intended to ensure that a consumer has full information regarding the 
opt-in right at a time that is most likely to be meaningful to the 
consumer, that is, when the opt-in decision is made.
    Proposed Sec.  226.56(d)(2) provides that notice of the consumer's 
right to revoke a prior election for the creditor's over-the-limit 
service must appear on each periodic statement that reflects the 
assessment of an over-the-limit fee or charge on a consumer's account. 
See TILA Section 127(k)(2). A revocation notice would be required 
regardless of whether the fee was imposed due to an over-the-limit 
transaction initiated by the consumer in the prior cycle or because the 
consumer failed to reduce the account balance below the credit limit in 
the next cycle. To ensure that the revocation notice is clear and 
conspicuous to the consumer, the proposed rule requires that the notice 
appear on the front of any page of the periodic statement. Proposed 
comment 56(d)-1 clarifies that creditors have flexibility regarding how 
often a revocation notice must be provided. At the creditor's option, 
it may, but is not required to, include the revocation notice on every 
periodic statement sent to the consumer, even if the consumer has not 
incurred an over-the-limit fee or charge during a particular billing 
cycle.
56(e) Content and Format
    TILA Section 127(k)(2) provides that a consumer's election to 
permit a creditor to extend credit that would exceed the credit limit 
may not take effect unless the consumer receives notice from the 
creditor of any over-the-limit fee ``in the form and manner, and at the 
time, determined by the Board.'' TILA Section 127(k)(2) also requires 
that the creditor provide notice to the consumer of the right to revoke 
the election, ``in the form prescribed by the Board,'' in any periodic 
statement reflecting the imposition of an over-the-limit fee. Proposed 
Sec.  226.56(e) sets forth the content requirements for both notices. 
See also proposed Model Forms G-25(A) and G-25(B) in Appendix G.
    Initial notice content. Proposed Sec.  226.56(e)(1) sets forth the 
information that must be included in the opt-in notice provided to 
consumers before a creditor may assess any fees or charges for paying 
an over-the-limit transaction. To ensure that consumers can make an 
informed decision regarding whether and how to affirmatively consent to 
a creditor's payment of over-the-limit transactions, creditors would be 
required to provide in the opt-in notice certain information in 
addition to the amount of the over-the-limit fee. The additional 
information would be prescribed pursuant to the Board's authority under 
TILA Section 105(a) to make adjustments that are necessary to 
effectuate the purposes of TILA. 15 U.S.C. 1604(a).
    Proposed Sec.  226.56(e)(1)(i) would require the opt-in notice to 
include information about the dollar amount of any fees or charges 
assessed on a consumer's credit card account for an over-the-limit 
transaction. The proposed requirement to state the fee amount on the 
opt-in notice itself is separate from other required disclosures 
regarding the amount of the over-the-limit fee. See, e.g., Sec.  
226.5a(b)(10). Because a creditor could comply with the opt-in notice 
requirement in several forms, such as providing the notice in the 
application or solicitation, in the account-opening disclosures, or as 
a stand-alone document, the Board believes that including the fee 
disclosure in the opt-in notice itself is necessary to ensure that 
consumers can easily determine the amounts they could be charged for an 
over-the-limit transaction.
    Some creditors may wish to vary the fee amount that may be imposed 
based upon the number of times the consumer has gone over the limit, 
the amount the consumer has exceeded the credit limit, or due to other 
factors. Under these circumstances, the creditor may disclose the 
maximum fee that may be imposed or a range of fees. Proposed comment 
56(e)-1 provides that the creditor may indicate that the consumer may 
be assessed a fee ``up to'' the maximum fee or provide the range of 
fees. Comment is requested whether additional guidance is necessary if 
an over-the-limit fee is determined by other means, such as a 
percentage of the over-the-limit transaction.
    In addition to disclosing the amount of the fee or charge that may 
be imposed for an over-the-limit transaction, proposed Sec.  
226.56(e)(1)(ii) would require creditors to disclose any increased rate 
that may apply if consumers exceed their credit limit. The Board 
believes the additional requirement is necessary to ensure consumers 
fully understand the potential consequences of exceeding their credit 
limit, particularly as a rate increase can be more costly than the 
imposition of a fee. This requirement is consistent with the content 
required to be disclosed regarding the consequences of a late payment. 
See TILA Section 127(b)(12); Sec.  226.7(b)(11) of the January 2009 
Regulation Z Rule. Accordingly, if, under the terms of the account 
agreement, an over-the-limit transaction could result in the loss of a 
promotional

[[Page 54181]]

rate, the imposition of a penalty rate, or both, this fact must be 
included in the opt-in notice.
    Proposed Sec.  226.56(e)(1)(iii) requires creditors to explain the 
consumer's right to affirmatively consent to the creditor's payment of 
over-the-limit transactions, including the methods that the consumer 
may use to exercise the right to opt in.
    In addition to providing the required content, some creditors may 
wish to include more information about the effects of opting in, 
including potential benefits. Proposed comment 56(e)-2 provides that 
creditors may briefly describe these benefits. For example, the 
creditor may state that if the consumer consents, or opts in, to the 
payment of over-the-limit transactions, the consumer may avoid having 
transactions declined if a transaction may exceed the credit limit. 
Creditors may also wish to disclose that over-the-limit transactions 
may be paid at the creditor's discretion or that the payment of over-
the-limit transactions is not guaranteed. Comment is requested 
regarding whether the rule should permit or require any other 
information to be included in the opt-in notice.
    The Board notes that permitting creditors to include additional 
content in the opt-in notice could lead to the potential consequence 
that the additional information may overwhelm the required content in 
the notice. Thus, comment is also requested regarding whether creditors 
should be permitted to include any information in the opt-in notice 
beyond the content specified in the rule.
    Revocation notice. Proposed Sec.  226.56(e)(2) would implement the 
requirement in TILA Section 127(k)(2) that a creditor must provide 
notice of the right to revoke consent that was previously granted for 
paying over-the-limit transactions. The proposed rule states that the 
notice must describe the consumer's right to revoke any consent 
previously granted, including the methods by which the consumer may 
revoke the service. As discussed above, creditors may include this 
notice on every periodic statement after the consumer has opted in to 
the creditor's payment of over-the-limit transactions or only on 
statements that reflect the imposition of an over-the-limit fee. See 
proposed comment 56(d)-1.
    Model forms. Proposed Model Forms G-25(A) and (B) include sample 
language that creditors may use to comply with the proposed notice 
content requirement. Use of the model forms, or substantially similar 
notices, would provide creditors a safe harbor for compliance under 
proposed Sec.  226.56(e)(3).
56(f)-(i) Additional Provisions Addressing Consumer Opt-in Right
    Joint accounts. Proposed Sec.  226.56(f) requires a creditor to 
treat affirmative consent provided by any joint consumer of a credit 
card account as affirmative consent for the account from all of the 
joint consumers. This provision recognizes the operational difficulties 
that would otherwise arise if a creditor had to determine which account 
holder was responsible for a particular transaction and then decide 
whether to authorize or pay an over-the-limit transaction based on that 
account-holder's opt-in choice. Moreover, because the same credit limit 
presumably applies to a joint account, one joint account holder's 
decision to opt in to the payment of over-the-limit transactions would 
also necessarily impact the other account holder. Accordingly, if one 
joint consumer opts in to the creditor's payment of over-the-limit 
transactions, the creditor must treat the consent as applying to all 
over-the-limit transactions for that account. The proposed rule also 
provides that a creditor shall treat a revocation of consent by any of 
the joint consumers as revocation of consent for the joint account. 
Proposed Sec.  226.56(f) applies only to consumer consent and 
revocation requests from consumers that are jointly liable on a credit 
card account. Accordingly, creditors would not be required or permitted 
to honor a request by an authorized user on an account to opt in or 
revoke a prior consent with respect to the creditor's over-the-limit 
transaction. Proposed comment 56(f)-1 provides this guidance.
    Continuing right to opt in or revoke opt-in. Proposed Sec.  
226.56(g) provides that a consumer may affirmatively consent to a 
creditor's payment of over-the-limit transactions at any time in the 
manner described in the opt-in notice. Similarly, a consumer may revoke 
a prior consent at any time in the manner described in the revocation 
notice provided under Sec.  226.56(b)(1)(iv). See TILA Section 
127(k)(4).
    Proposed comment 56(g)-1 clarifies that a consumer's decision to 
revoke a prior consent would not require the creditor to waiver or 
reverse any over-the-limit fee or charges assessed to the consumer's 
account prior to the creditor's implementation of the consumer's 
revocation request. In addition, the proposed rule does not prevent the 
creditor from assessing over-the-limit fees in a subsequent cycle if 
the consumer's account balance continues to exceed the credit limit as 
a result of an over-the-limit transaction that was completed prior to 
the consumer's revocation of consent.
    Duration of opt-in. Proposed Sec.  226.56(h) provides that a 
consumer's affirmative consent is generally effective until revoked by 
the consumer. Proposed comment 56(h)-1 clarifies, however, that a 
creditor may cease paying over-the-limit transactions at any time and 
for any reason even if the consumer has consented to the service. For 
example, a creditor may wish to stop providing the service in response 
to changes in the credit risk presented by the consumer.
    Time to implement consumer revocation. Proposed Sec.  226.56(i) 
requires that a creditor must implement a consumer's revocation request 
as soon as reasonably practicable after the creditor receives the 
request. The proposed requirement recognizes that while creditors will 
presumably want to implement a consumer's consent request as soon as 
possible, the same incentives may not apply if the consumer 
subsequently decides to revoke that request. The Board is not proposing 
to prescribe a specific period of time within which the creditor must 
honor the consumer's revocation request, however, because the 
appropriate time period may depend on a number of variables, including 
the method used by the consumer to communicate the revocation request 
(for example, in writing or orally) and the channel in which the 
request is received (for example, if a consumer sends a written request 
to the creditor's general address for receiving correspondence or to an 
address specifically designated to receive consumer opt-in and 
revocation requests). Comment is requested whether a safe harbor for 
implementing revocation requests, such as five business days from the 
date of the request, may be helpful to facilitate compliance with the 
proposed rule.
    The Board also solicits comment on the merits of an alternative 
approach which would require creditors to implement revocation requests 
within the same time period that a creditor generally takes to 
implement opt-in requests. Such a timing rule could be dependent upon 
the method of the consumer's request. For example under the alternative 
approach, if the creditor typically takes three business days to 
implement a consumer's written opt-in request, it should take no more 
than three business days to implement the consumer's later written 
request to revoke that consent. However, if a creditor typically 
implements written consent requests within three business

[[Page 54182]]

days and telephone requests within one business day, the alternative 
approach would provide that the creditor could implement a written 
revocation request within three business days, even if the consumer had 
previously opted into the service by telephone.
56(j) Prohibited Practices
    Proposed Sec.  226.56(j) prohibits certain creditor practices in 
connection with the assessment of over-the-limit fees or charges. These 
prohibitions implement separate requirements set forth in TILA Sections 
127(k)(5) and 127(k)(7), and apply even if the consumer has 
affirmatively consented to the creditor's payment of over-the-limit 
transactions.
56(j)(1) Fees Imposed per Billing Cycle
    New TILA Section 127(k)(7) provides that a creditor may not impose 
more than one over-the-limit fee during a billing cycle. In addition, 
Section 127(k)(7) generally provides that an over-the-limit fee may be 
imposed ``only once in each of the 2 subsequent billing cycles'' for 
the same over-the-limit transaction. Proposed Sec.  226.56(j)(1) 
implements these restrictions.
    Proposed Sec.  226.56(j)(1)(i) would prohibit a creditor from 
imposing more than one over-the-limit fee or charge on a consumer's 
credit card account in any billing cycle. In addition, a creditor must 
not impose an over-the-limit fee or charge on the account for the same 
over-the-limit transaction or transactions in more than three billing 
cycles. As a further limitation, however, fees may not be imposed for 
the second or third cycle unless the consumer has failed to reduce the 
account balance below the credit limit by the payment due date of 
either cycle. The Board believes that this interpretation of TILA 
Section 127(k)(7) is consistent with Congress's general intent to limit 
a creditor's ability to impose multiple over-the-limit fees for the 
same transaction as well as the requirement in TILA Section 106(b) that 
consumers be given a sufficient amount of time to make payments. 
Moreover, as discussed below, a creditor's failure to provide a 
consumer sufficient time to reduce his or her balance below the credit 
limit would appear to be an unfair or deceptive act or practice. See 
TILA Section 127(k)(5) and discussion below.
    As discussed above, the proposed rule would give a consumer until 
the payment due date to reduce the account balance below the credit 
limit to avoid over-the-limit fees during the second and third billing 
cycles. Although new TILA Section 127(k)(7) could be construed as 
providing until the end of the billing cycle to make a payment that 
reduces the account balance below the credit limit, the Board believes 
that using the payment due date as the relevant date will facilitate 
compliance.
    Under current billing practices, the end of the billing cycle 
serves as the statement cut-off date and occurs a certain number of 
days after the due date for payment on the prior cycle's activity. The 
time period between the payment due date and the end of the billing 
cycle allows the creditor sufficient time to reflect timely payments on 
the subsequent periodic statement and to determine the fees and 
interest charges for the statement period. If the rule were to give 
consumers until the end of the billing cycle to reduce the account 
balance below the credit limit, creditors would have difficulty 
determining whether or not they could impose another over-the-limit fee 
for the statement cycle, which could delay the generation and mailing 
of the periodic statement and impede their ability to comply with the 
21-day requirement for mailing statements in advance of the payment due 
date.
    Moreover, tying the time in which a consumer could make payment to 
reduce the account balance below the credit limit to the payment due 
date would cause minimal if any adverse harm to consumers. Because a 
consumer is likely to make payment by the due date to avoid other 
adverse financial consequences (such as a late payment fee or increased 
APRs for new transactions), the additional time to make payment to 
avoid successive over-the-limit fees would appear to be unnecessary 
from a consumer protection perspective. Such a date also could confuse 
consumers by providing two distinct dates, each with different 
consequences (that is, penalties for late payment or the assessment of 
over-the-limit fees). For these reasons, the Board is proposing to 
exercise its TILA Section 105(a) authority to provide that a creditor 
may not impose an over-the-limit fee or charge on the account for a 
consumer's failure to reduce the account balance below the credit limit 
during the second or third billing cycle unless the consumer has not 
done so by the payment due date.
    To illustrate the proposed limitation, assume that a consumer has 
exceeded the credit limit and is assessed an over-the-limit fee on the 
January billing statement for a transaction in the December billing 
cycle. Under this circumstance, the creditor must not assess additional 
over-the-limit fees on the consumer's credit card account for the 
February or March billing statements for the same over-the-limit 
transaction unless the consumer has not made sufficient payment by the 
January or February payment due dates to reduce the account balance 
below the credit limit.
    Proposed Sec.  226.56(j)(1)(ii) provides that the limitation on 
imposing over-the-limit fees for more than three billing cycles does 
not apply if a consumer engages in an additional over-the-limit 
transaction in either of the two billing cycles following the cycle in 
which the consumer is first assessed a fee for exceeding the credit 
limit. The assessment of fees or interest charges by the creditor would 
not constitute an additional over-the-limit transaction for purposes of 
this exception, consistent with the definition of ``over-the-limit 
transaction'' under proposed Sec.  226.56(a). In addition, the proposed 
exception would not permit a creditor to impose fees for both the 
initial over-the-limit transaction as well as the additional over-the-
limit transaction(s), as the general restriction on assessing more than 
one over-the-limit fee in the same billing cycle would continue to 
apply. Proposed comment 56(j)-1 contains examples illustrating the 
general rule and the exception.
Proposed Prohibitions on Unfair or Deceptive Over-the-Limit Acts or 
Practices
    Proposed Sec.  226.56(j) includes additional substantive 
limitations and restrictions on certain creditor acts or practices 
regarding the imposition of over-the-limit fees. These proposed 
limitations and restrictions are based on the Board's authority under 
TILA Section 127(k)(5)(B) which directs the Board to prescribe 
regulations that prevent unfair or deceptive acts or practices in 
connection with the manipulation of credit limits designed to increase 
over-the-limit fees or other penalty fees.
Legal Authority
    The Credit Card Act does not set forth a standard for what is an 
``unfair or deceptive act or practice'' and the legislative history for 
the Credit Card Act is similarly silent. Congress has elsewhere 
codified standards developed by the Federal Trade Commission for 
determining whether acts or practices are unfair under Section 5(a) of 
the Federal Trade Commission Act, 15 U.S.C. 45(a).\38\ Specifically, 
the FTC Act provides that an act or practice is unfair when it causes 
or is likely to cause

[[Page 54183]]

substantial injury to consumers which is not reasonably avoidable by 
consumers themselves and not outweighed by countervailing benefits to 
consumers or to competition. In addition, in determining whether an act 
or practice is unfair, the FTC may consider established public policy, 
but public policy considerations may not serve as the primary basis for 
its determination that an act or practice is unfair. 15 U.S.C. 45(a).
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    \38\ See 15 U.S.C. 45(n); Letter from FTC to the Hon. Wendell H. 
Ford and the Hon. John C. Danforth, S. Comm. On Commerce, Science & 
Transp. (Dec. 17, 1980) (FTC Policy Statement on Unfairness) 
(available at http://www.ftc.gov/bcp/policystmt/ad-unfair.htm).
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    According to the FTC, an unfair act or practice will almost always 
represent a market failure or market imperfection that prevents the 
forces of supply and demand from maximizing benefits and minimizing 
costs.\39\ Not all market failures or imperfections constitute unfair 
acts or practices, however. Instead, the central focus of the FTC's 
unfairness analysis is whether the act or practice causes substantial 
consumer injury.\40\
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    \39\ Statement of Basis and Purpose and Regulatory Analysis for 
Federal Trade Commission Credit Practices Rule (Statement for FTC 
Credit Practices Rule), 49 FR 7740, 7744 (Mar. 1, 1984).
    \40\ Id. at 7743.
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    The FTC has also adopted standards for determining whether an act 
or practice is deceptive, although these standards, unlike unfairness 
standards, have not been incorporated in to the FTC Act.\41\ Under the 
FTC's standards, an act or practice is deceptive where: (1) There is a 
representation or omission of information that is likely to mislead 
consumers acting reasonably under the circumstances; and (2) that 
information is material to consumers.\42\
---------------------------------------------------------------------------

    \41\ Letter from the FTC to the Hon. John H. Dingell, H. Comm. 
on Energy & Commerce (Oct. 14, 1983) (FTC Policy Statement on 
Deception) (available at http://www.ftc.gov/bcp/policystmt/ad-decept.html).
    \42\ Id. at 1-2. The FTC views deception as a subset of 
unfairness but does not apply the full unfairness analysis because 
deception is very unlikely to benefit consumers or competition and 
consumers cannot reasonably avoid being harmed by deception.
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    Many states also have adopted statutes prohibiting unfair or 
deceptive acts or practices, and these statutes may employ standards 
that are different from the standards currently applied to the FTC 
Act.\43\ In proposing rules under TILA Section 127(k)(5), the Board has 
considered the standards currently applied to the FTC Act's prohibition 
against unfair or deceptive acts or practices, as well as the standards 
applied to similar state statutes. These proposals should not, however, 
be construed as a definitive conclusion by the Board that a particular 
practice is unfair or deceptive.
---------------------------------------------------------------------------

    \43\ For example, a number of states follow an unfairness 
standard formerly used by the FTC. Under this standard, an act or 
practice is unfair where it offends public policy; or is immoral, 
unethical, oppressive, or unscrupulous; and causes substantial 
injury to consumers. See, e.g., Kenai Chrysler Ctr., Inc. v. 
Denison, 167 P.3d 1240, 1255 (Alaska 2007) (quoting FTC v. Sperry & 
Hutchinson Co., 405 U.S. 233, 244-45 n.5 (1972)); State v. Moran, 
151 N.H. 450, 452, 861 A.2d 763, 755-56 (N.H. 2004); Robinson v. 
Toyota Motor Credit Corp., 201 Ill. 2d 403, 417-418, 775, N.E.2d 
951, 961-62 (2002).
---------------------------------------------------------------------------

Insufficient Time To Reduce Excess Credit
    As discussed above, proposed Sec.  226.56(j)(1) would generally 
prohibit a creditor from assessing an over-the-limit fee on a 
consumer's credit card account in a subsequent billing cycle unless the 
consumer has not reduced the account balance below the credit limit by 
the payment due date. This provision, which implements a statutory 
restriction set forth in TILA Section 127(k)(7), is intended to ensure 
that a consumer who has been assessed an over-the-limit fee or charge 
in one billing cycle does not incur a second over-the-limit fee or 
charge in the next billing cycle solely because the consumer has not 
made payment on or before the due date. For example, a creditor would 
be prohibited from assessing a second over-the-limit fee or charge on 
the first day of the next billing cycle before the consumer has had an 
opportunity to reduce the account balance. Assessing an over-the-limit 
fee in a subsequent billing cycle without providing the consumer 
sufficient time to reduce the account balance would also appear to be 
an unfair or deceptive act or practice.
Legal Analysis
    Potential injury that is not reasonably avoidable. Consumers may 
incur substantial monetary injury due to the fees assessed in 
connection with the payment of over-the-limit transactions. In addition 
to costly per transaction fees, consumers may also trigger rate 
increases if the over-the-limit transaction is deemed to be a violation 
of the credit card contract. A 2006 Government Accountability Office 
(GAO) report on credit cards indicates that the average cost to 
consumers resulting from over-the-limit transactions exceeded $30 in 
2005.\44\ The GAO also reported that in the majority of credit card 
agreements that it surveyed, default rates could apply if a consumer 
exceeded the credit limit on the card.\45\
---------------------------------------------------------------------------

    \44\ See U.S. Gov't Accountability Office, Credit Cards: 
Increased Complexity in Rates and Fees Heightens Need for More 
Effective Disclosures to Consumers at 20-21 (Sept. 2006) (GAO Credit 
Card Report) (available at http://www.gao.gov/new.items/d06929.pdf).
    \45\ See id. at 25.
---------------------------------------------------------------------------

    Although consumers can reduce the risk of exceeding their credit 
limit by carefully tracking their credit card transactions and payments 
made, consumers often lack sufficient information about key aspects of 
their credit card accounts. For example, a consumer cannot know with 
any degree of certainty when a payment will be credited to his or her 
account and the credit limit replenished or when a credit for a 
returned purchase will be made available. Equally, given the lack of 
real-time information available to the authorization system, even the 
creditor's decision to authorize a transaction does not necessarily 
indicate at the time of the authorization that the creditor has 
knowingly authorized an over-the-limit transaction.\46\
---------------------------------------------------------------------------

    \46\ See Household Credit Servs. v. Pfennig, 541 U.S. 232, 244 
(2004) (recognizing that a creditor's ``authorization'' of a point 
of sale transaction ``does not represent a final determination that 
a particular transaction is within a consumer's credit limit because 
the authorization system is not suited to identify instantaneously 
and accurately over-limit transactions'').
---------------------------------------------------------------------------

    Potential costs and benefits. There appears to be little if any 
direct benefit to consumers from receiving insufficient time to bring 
their account balances below their credit limit. While requiring 
creditors to wait an additional period of time before assessing over-
the-limit fees or charges may reduce revenue for some institutions and 
those institutions may replace that revenue by charging consumers 
higher annual percentage rates or fees, it appears that consumers will 
benefit overall from having a reasonable period of time in which to 
reduce their account balances below the credit limit and avoiding 
additional penalties such as the assessment of an over-the-limit fee or 
application of a rate increase.
56(j)(2) Failure to Promptly Replenish
    Section 226.10 generally requires creditors to credit consumer 
payments as of the date of receipt, except when a delay in crediting 
does not result in a finance or other charge. This provision does not 
address, however, when a creditor must replenish the consumer's credit 
limit after receiving payment. Thus, a consumer may submit payment 
sufficient to reduce his or her account balance below the credit limit 
and make additional purchases during the next cycle on the assumption 
that the credit line will be replenished once the payment is credited. 
If the creditor does not promptly replenish the credit line, the 
additional transactions may cause the consumer to exceed the credit 
limit and incur fees. Proposed Sec.  226.56(j)(2) would prohibit a 
creditor from assessing

[[Page 54184]]

an over-the-limit fee or charge that is caused by the creditor's 
failure to promptly replenish the consumer's available credit.
Legal Analysis
    Potential injury that is not reasonably avoidable. In most cases, 
creditors replenish the available credit on a credit card account 
shortly after the payment has been credited to the account to enable 
the cardholder to make new transactions on the account. As a result, a 
consumer that has used all or most of the available credit during one 
billing cycle would again be able to make transactions using the credit 
card once the consumer has made payments on the account balance and the 
available credit is restored to the account. If, however, the creditor 
delays replenishment on the account after crediting the payment to the 
consumer's account, the consumer could inadvertently exceed the credit 
limit if the cardholder uses the credit card account for new 
transactions and such transactions are authorized by the creditor. In 
addition to the potential assessment of over-the-limit fees, the 
resulting over-the-limit transaction may also cause the consumer to 
trigger increased rates due to default on the credit agreement. In 
those circumstances, it appears that consumers cannot reasonably avoid 
the injury caused by the over-the-limit fee and rate increase because 
they will be unaware of the creditor's delay in restoring the 
consumer's credit line particularly if the payment has been credited to 
the consumer's account.
    Potential costs and benefits. The prohibited practice would not 
appear to create benefits for consumers and competition that outweigh 
the injury. While a creditor may reasonably decide to delay 
replenishing a consumer's available credit, for example, in the case of 
potential fraud on the account, there does not appear to be any benefit 
to the consumer from permitting the creditor to assess over-the-limit 
fees that may be incurred as a result of the delay in replenishment.
Proposal
    Proposed Sec.  226.56(j)(2) prohibits a creditor from imposing any 
over-the-limit fee or charge solely because of the creditor's failure 
to promptly replenish the consumer's available credit after the 
creditor has credited the consumer's payment under Sec.  226.10. 
Proposed comment 56(j)(2)-1 clarifies that the proposed prohibition is 
not intended to require creditors to immediately replenish the 
available credit upon crediting a consumer's payment, or to prevent 
creditors from delaying replenishment where appropriate, for example, 
in cases of suspected fraud. Nor does the proposed prohibition require 
creditors to decline all transactions for consumers who have opted in 
to the creditor's payment of over-the-limit transactions until the 
available credit has been restored. Rather, the creditor would only be 
prohibited from assessing any over-the-limit fees or charges caused by 
the creditor's decision not to replenish the available credit after 
posting the consumer's payment to the account. Comment is requested 
regarding whether the rule should provide a safe harbor specifying the 
number of days following crediting of a consumer's payment by which a 
creditor must replenish a consumer's available credit.
56(j)(3) Conditioning
    Proposed Sec.  226.56(j)(3) would prohibit a creditor from 
conditioning the amount of available credit provided on the consumer's 
affirmative consent to the creditor's payment of over-the-limit 
transactions. The proposed provision addresses concerns that a creditor 
may seek to tie the amount of credit provided to the consumer 
affirmatively consenting to the creditor's payment of over-the-limit 
transactions.
Legal Analysis
    Potential injury that is not reasonably avoidable. As the Board has 
previously stated elsewhere, consumers receive considerable benefits 
from receiving credit cards that provide a meaningful amount of 
available credit. For example, credit cards enable consumers to engage 
in certain types of transactions, such as making purchases by telephone 
or on-line, or renting a car or hotel room. Given these benefits, some 
consumers might be compelled to opt in to a creditor's payment of over-
the-limit transactions if not doing so may result in the consumer 
otherwise obtaining a minimal amount of credit or failing to qualify 
for credit altogether. Thus, it would appear that such consumers would 
be prevented from exercising a meaningful choice regarding the 
creditor's payment of over-the-limit transactions. Moreover, the 
practice of conditioning the amount of credit provided based on whether 
the consumer opts in to the creditor's payment of over-the-limit 
transactions would also appear to raise significant concerns under the 
Equal Credit Opportunity Act. See 15 U.S.C. 1691(a)(3).
    Potential costs and benefits. There do not appear to be any 
significant benefits to consumers or competition from conditioning or 
linking the amount of credit available to the consumer based on the 
consumer consenting to the creditor's payment of over-the-limit 
transactions. While some creditors may seek to replace the revenue from 
over-the-limit fees by charging consumers higher annual percentage 
rates or fees, overall, consumers will benefit from having a meaningful 
choice regarding whether to have over-the-limit transactions approved 
by the creditor.
Proposal
    Proposed Sec.  226.56(j)(3) is intended to prevent creditors from 
effectively circumventing the consumer choice requirement by 
prohibiting a creditor from conditioning or otherwise linking the 
amount of credit granted on the consumer opting in to the creditor's 
payment of over-the-limit transactions. Under the proposed rule, a 
creditor could not, for example, require a consumer to opt in to the 
creditor's fee-based over-the-limit service in order to receive a 
higher credit limit for the account. Similarly, a creditor would be 
prohibited from denying a consumer's credit card application solely 
because the consumer did not opt in to the creditor's over-the-limit 
service. The proposed rule is illustrated by way of example in proposed 
comment 56(j)-1.
56(j)(4) Over-the-Limit Fees Attributed to Fees or Interest
    Proposed Sec.  226.56(j)(4) would prohibit the imposition of any 
over-the-limit fees or charges if the credit limit is exceeded solely 
because of the creditor's assessment of accrued interest charges or 
fees on the consumer's credit card account.
Legal Analysis
    Potential injury that is not reasonably avoidable. As discussed 
above, consumers may incur substantial monetary injury due to the fees 
assessed in connection with the payment of over-the-limit transactions. 
In addition to per transaction fees, consumers may also trigger rate 
increases if the over-the-limit transaction is deemed to be a violation 
of the credit card contract.
    The injury from over-the-limit fees and potential rate increases 
would not appear to be reasonably avoidable in these circumstances 
because consumers are, as a general matter, unlikely to be aware of the 
amount of interest charges or fees that may be added to their account 
balance when deciding whether or not to engage in a credit card 
transaction. With respect to accrued interest charges, these additional 
amounts are typically added to a consumer's account balance at the end

[[Page 54185]]

of the billing cycle after the consumer has completed his or her 
transactions for the cycle and thus are unlikely to have been taken 
into account when the consumer engages in the transactions.
    Potential costs and benefits. Although prohibition of the 
assessment of over-the-limit fees caused by accrued finance charges and 
fees may reduce creditor revenues and lead creditors to replace lost 
revenue by charging consumers higher rates or fees, it appears that the 
proposal will result in a net benefit to consumers because some 
consumers are likely to benefit substantially while the adverse effects 
on others are likely to be small. Because permitting fees and interest 
charges to trigger over-the-limit fees may have the effect of 
retroactively reducing a consumer's available credit for prior 
transactions, prohibiting such a practice would protect consumers 
against unexpected over-the-limit fees and rate increases which could 
substantially add to their cost of credit. Moreover, consumers will be 
able to more accurately manage their credit lines without having to 
factor additional costs that cannot be easily determined. While some 
consumers may pay higher fees and initial rates, consumers are likely 
to benefit overall through more transparent pricing.
Proposal
    Proposed Sec.  226.56(j)(4) would prohibit creditors from imposing 
an over-the-limit fee or charge if a consumer exceeds a credit limit 
solely because of fees or interest charged by the creditor to the 
consumer's account during the billing cycle. The proposed prohibition 
is generally intended to prohibit creditors from assessing over-the-
limit fees or charges on consumer credit card accounts unless the 
credit limit was exceeded solely by transactions or charges that were 
not initiated by the consumer during the billing cycle.
    For purposes of this prohibition, the fees or interest charges that 
may not trigger the imposition of an over-the-limit fee would be 
considered charges imposed as part of the plan under Sec.  
226.6(b)(3)(i). Thus, the proposed rule would also prohibit the 
assessment of an over-the-limit fee or charge even if the credit limit 
was exceeded due to fees for services requested by the consumer if such 
fees would constitute charges imposed as part of the plan (for example, 
fees for voluntary debt cancellation or suspension coverage).
    The proposed prohibition would not restrict creditors from 
assessing over-the-limit fees due to accrued finance charges or fees 
from prior cycles that have subsequently been added to the account 
balance. Comment is requested regarding the operational issues that may 
arise from the proposed prohibition.
Notice of Reduction of the Credit Limit
    In the July 2009 Regulation Z Interim Final Rule, the Board adopted 
a provision applicable to credit card accounts under an open-end (not 
home-secured) plan that addresses notices of changes in a consumer's 
credit limit. As set forth in the interim final rule, Sec.  
226.9(c)(2)(vi) requires a creditor to provide a consumer with 45 days' 
advance notice that a credit limit is being decreased or will be 
decreased prior to the imposition of any over-the-limit fee or penalty 
rate imposed solely as the result of the balance exceeding the newly 
decreased credit limit.\47\ The new provision is intended to protect 
consumers against costly surprises potentially associated with a 
reduction in the credit limit, specifically, fees and rate increases, 
while giving a consumer adequate time to mitigate the effect of the 
credit line reduction. See 74 FR 36077.
---------------------------------------------------------------------------

    \47\ A substantively similar provision was adopted in the 
January 2009 Regulation Z Rule. See Sec.  226.9(c)(2)(v).
---------------------------------------------------------------------------

    Neither Sec.  226.9(c)(2)(vi) nor the restrictions proposed 
pursuant to the Board's authority under TILA Section 127(k)(5) would 
limit a creditor's ability to use line reductions to address safety and 
soundness concerns when a borrower's risk increases. As stated in the 
July 2009 Regulation Z Interim Final Rule, the Board recognizes that 
creditors have a legitimate interest in mitigating the risk of a loss 
when a consumer's creditworthiness deteriorates and that it may be 
appropriate in some cases for creditors to reduce the credit limit as a 
risk mitigation tool.

Section 226.57 Special Rules for Marketing Open-End Credit to College 
Students

    Section 304 of the Credit Card Act adds new TILA Section 140(f) to 
require the public disclosure of contracts or other agreements between 
card issuers and institutions of higher education for the purpose of 
marketing a credit card and to impose new restrictions related to 
marketing open-end credit to college students. 15 U.S.C. 1650(f). The 
Board proposes to implement these provisions in new Sec.  226.57.
    The Board also proposes to implement provisions related to new TILA 
Section 127(r) in Sec.  226.57. 15 U.S.C. 1637(r). TILA Section 127(r), 
which was added by Section 305 of the Credit Card Act, requires card 
issuers to submit an annual report to the Board containing the terms 
and conditions of business, marketing, promotional agreements, and 
college affinity card agreements with an institution of higher 
education, or other related entities, with respect to any college 
student credit card issued to a college student at such institution.
57(a) Definitions
    New TILA Section 140(f) does not provide any definitions while new 
TILA Section 127(r) provides definitions for terms that are also used 
in new TILA Section 140(f). See 15 U.S.C. 1650(f). To ensure the use of 
these terms is consistent throughout these sections, the Board proposes 
to incorporate the definitions set forth in TILA Section 127(r) in 
Sec.  226.57(a).
    Proposed Sec.  226.57(a)(1) would define ``college student credit 
card'' as a credit card issued under a credit card account under an 
open-end (not home-secured) consumer credit plan to any college 
student. This definition is similar to TILA Section 127(r)(1)(B), which 
defines ``college student credit card account'' as a credit card 
account under an open-end consumer credit plan established or 
maintained for or on behalf of any college student. Proposed Sec.  
226.57(a)(1) defines ``college student credit card'' rather than 
``college student credit card account'' because the statute and 
regulation use the former term but not the latter. Also, the proposed 
definition uses the proposed defined term ``credit card account under 
an open-end (not home-secured) consumer credit plan'' (in proposed 
Sec.  226.2(a)(15)) for consistency with other sections of the proposed 
regulations implementing the Credit Card Act. The term would exclude 
home-equity lines of credit accessed by credit cards and overdraft 
lines of credit accessed by debit cards, which the Board believes are 
not typical types of college student credit cards.
    TILA Section 127(r)(1)(A) defines ``college affinity card'' as a 
credit card issued under an open end consumer credit plan in 
conjunction with an agreement between the issuer and an institution of 
higher education or an alumni organization or a foundation affiliated 
with or related to an institution of higher education under which cards 
are issued to college students having an affinity with the institution, 
organization or foundation where at least one of three criteria also is 
met. These three criteria are: (1) The creditor has agreed to donate a 
portion of the proceeds of the credit card to the institution, 
organization, or foundation (including a lump-sum or one-time payment 
of money for access); (2) the

[[Page 54186]]

creditor has agreed to offer discounted terms to the consumer; or (3) 
the credit card bears the name, emblem, mascot, or logo of such 
institution, organization, or foundation, or other words, pictures or 
symbols readily identified with such institution or affiliated 
organization. The Board is not proposing a regulatory definition 
comparable to this definition in the statute; it appears that the 
definition of ``college student credit card,'' discussed above, is 
broad enough to encompass any ``college affinity card'' as defined in 
TILA Section 127(r)(1)(A), and therefore the definition of ``college 
affinity card'' is unnecessary. However, the Board solicits comment on 
whether the regulations should contain a definition of ``college 
affinity card'' as well as a definition of ``college student credit 
card.''
    Proposed comment 57(a)(1)-1 would clarify that a college student 
credit card includes a college affinity card, as discussed above, and 
that, in addition, a card may fall within the scope of the definition 
regardless of the fact that it is not intentionally targeted at or 
marketed to college students.
    Proposed Sec.  226.57(a)(2) would define ``college student'' as an 
individual who is a full-time or a part-time student attending an 
institution of higher education. This definition is consistent with the 
definition of ``college student'' in TILA Section 127(r)(1)(C). The 
definition is intended to be broad and would apply to students of any 
age attending an institution of higher education. Furthermore, the term 
``college student'' is not limited to students attending an 
undergraduate program at an institution of higher education. The term 
applies to all students, including those enrolled in graduate programs 
or joint degree programs.
    TILA Section 127(r)(1)(D) states that the term ``institution of 
higher education'' has the same meaning as in section 101 and 102 of 
the Higher Education Act of 1965. 20 U.S.C. 1001 and 1002. Meanwhile, 
TILA Section 140(a)(3), as added by the Higher Education Opportunity 
Act of 2008, contains a definition for ``institution of higher 
education'' that differs slightly from the definition in TILA Section 
127(r)(1)(D). Specifically, TILA Section 140(a)(3) states that 
``institution of higher education'' has the same meaning as in section 
102 of the Higher Education Act of 1965 (20 U.S.C. 1002), without 
reference to section 101 of the Higher Education Act of 1965 (20 U.S.C. 
1001). However, as discussed in the Board's recently adopted amendments 
regarding private education loans, the Board understands that 
institutions covered under section 101 of the Higher Education Act of 
1965 would also be covered under section 102 of the Higher Education 
Act of 1965. As a result, the definition of ``institution of higher 
education'' adopted in Sec.  226.46(b)(2) to implement TILA Section 
140(a)(3), as it applies to private education loans references both 
sections 101 and 102 of the Higher Education Act of 1965.\48\
---------------------------------------------------------------------------

    \48\ 74 FR 41194 (Aug. 14, 2009).
---------------------------------------------------------------------------

    In order to have a consistent definition of the term for all 
sections added by the Credit Card Act and to facilitate compliance, the 
Board proposes to use its authority under TILA Section 105(a) to apply 
the definition in TILA Section 127(r)(1)(D) to TILA Section 140(f). 15 
U.S.C. 1604(a). As a result proposed Sec.  226.57(a)(3) would adopt the 
definition of ``institution of higher education'' in TILA Section 
127(r)(1)(D) and would be applicable not only to the provisions in TILA 
Section 127(r), but also TILA Section 140(f). This definition would 
also be consistent with the definition of ``institution of higher 
education'' in Sec.  226.46(b)(2) for private education loans.
    Proposed Sec.  226.57(a)(4) would define ``affiliated 
organization'' as an alumni organization or foundation affiliated with 
or related to an institution of higher education, to provide a 
conveniently shorter term to be used to refer to such organizations and 
foundations in various provisions of the proposed regulations.
    Proposed Sec.  226.57(a)(5) would delineate the types of agreements 
for which creditors must provide annual reports to the Board, under the 
defined term ``college credit card agreement.'' The term would be 
defined to include any business, marketing or promotional agreement 
between a card issuer and an institution of higher education or an 
affiliated organization in connection with which college student credit 
cards are issued to college students currently enrolled at that 
institution. The definition would not incorporate the concept of a 
college affinity card agreement, which is used in TILA Section 
127(r)(1)(A), as discussed above. The Board believes that the 
definition of ``college credit card agreement'' as proposed would be 
broad enough to include agreements concerning college affinity cards; 
however, the Board requests comment on whether language referring to 
college affinity card agreements should also be included in the 
regulations.
    As proposed comment 57(a)(5)-1 would clarify, business, marketing 
and promotional agreements may include a broad range of arrangements 
between a creditor and an institution of higher education or affiliated 
organization, including arrangements that do not fall within the 
concept of a college affinity card agreement as discussed in TILA 
Section 127(r)(1)(A). For example, TILA Section 127(r)(1)(A) specifies 
that under a college affinity card agreement, the card issuer has 
agreed to make a donation to the institution or affiliated 
organization, the card issuer has agreed to offer discounted terms to 
the consumer, or the credit card will display pictures, symbols, or 
words identified with the institution or affiliated organization; even 
if these conditions are not met, an agreement may qualify as a college 
credit card agreement, if the agreement is a business, marketing or 
promotional agreement that contemplates the issuance of college student 
credit cards to college students currently enrolled at the institution. 
An agreement may qualify as a college credit card agreement even if 
marketing of cards under the agreement is targeted at alumni, faculty, 
staff, and other non-student consumers, as long as cards may also be 
issued to students in connection with the agreement.
57(b) Public Disclosure of Agreements
    The Board proposes to implement new TILA Section 140(f)(1) in Sec.  
226.57(b). Consistent with the statute, proposed Sec.  226.57(b) would 
state that an institution of higher education shall publicly disclose 
any credit card marketing contract or other agreement made with a card 
issuer or creditor. The Board also proposes commentary to provide 
examples of how an institution of higher education may publicly 
disclose such contracts or agreements, and to clarify that the entire 
agreement must be disclosed. Proposed comment 57(b)-1 would specify 
that an institution of higher education may fulfill its duty to 
publicly disclose any contract or other agreement made with a card 
issuer or creditor for the purposes of marketing a credit card by 
posting such contract or agreement on its Web site. Alternatively, the 
institution of higher education may make such contract or agreement 
available upon request, provided the procedures for requesting the 
documents are reasonable and free of cost to the requestor, and the 
contract or agreement is provided within a reasonable time frame. The 
list in proposed comment 57(b)-1 is not exhaustive, so an institution 
of higher education may publicly disclose these contracts or agreements 
in other ways.
    In addition, proposed comment 57(b)-2 would bar institutions of 
higher

[[Page 54187]]

education from redacting any contracts or agreements they are required 
to publicly disclose under proposed Sec.  226.57(b). As a result, any 
clauses in existing contract or agreements addressing the 
confidentiality of such contracts or agreements would be invalid to the 
extent they prevent institutions of higher education from publicly 
disclosing such contracts or agreements in accordance with proposed 
Sec.  226.57(b). The Board believes that it is important that all 
provisions of these contracts or agreements be available to college 
students and other interested parties. If institutions were permitted 
to redact portions of these contracts or agreements, interested parties 
may be deprived of a full understanding of these arrangements.
57(c) Prohibited Inducements
    Under TILA Section 140(f)(2), no card issuer or creditor may offer 
to a student at an institution of higher education any tangible item to 
induce such student to apply for or participate in an open-end consumer 
credit plan offered by such card issuer or creditor, if such offer is 
made on the campus of an institution of higher education, near the 
campus of an institution of higher education, or at an event sponsored 
by or related to an institution of higher education. The Board proposes 
to implement this provision in Sec.  226.57(c), which generally would 
track the statutory language. The Board notes that unlike other 
statutory provisions the Board proposes to implement in Sec.  226.57, 
TILA Section 140(f)(2) applies not only to credit card accounts, but 
also other open-end consumer credit plans, such as lines of credit.
    To provide further guidance on the prohibition in Sec.  226.57(c), 
the Board also proposes several new comments. Proposed comment 57(c)-1 
would clarify that a tangible item under Sec.  226.57(c) includes any 
physical item, such as a gift card, a t-shirt, or a magazine 
subscription, that a card issuer or creditor offers to induce a college 
student to apply for or open an open-end consumer credit plan offered 
by such card issuer or creditor. The proposed comment would also 
provide some examples of non-physical inducements that would not be 
considered tangible items, such as discounts, rewards points, or 
promotional credit terms.
    Because offering tangible items to college students is prohibited 
only if the items are offered to induce the student to apply for or 
open an open-end consumer credit plan, proposed comment 57(c)-2 would 
clarify that if a tangible item is offered to a person whether or not 
that person applies for or opens an open-end consumer credit plan, the 
item is not an inducement. As an example, proposed comment 57(c)-2 
states that refreshments offered to a college student on campus that 
are not conditioned on whether the student has applied for or agreed to 
open an open-end consumer credit plan would not be considered 
inducements that would cause a creditor to violate Sec.  226.57(c).
    The prohibition in Sec.  226.57(c) extends to an offer that is 
made, among other places, near the campus of an institution of higher 
education. The Board is not aware of any standard for determining a 
location near a school that is analogous to the prohibition in TILA 
Section 140(f)(2), but is aware of existing standards for other types 
of prohibitions. TILA Section 140(f)(2)(B) requires the Board to 
determine what is considered near the campus of an institution of 
higher education. Based on the distances used in State and Federal laws 
for other restricted activities near a school,\49\ the Board proposes 
comment 57(c)-3 to provide that a location that is within 1,000 feet of 
the border of the campus of an institution of higher education, as 
defined by the institution of higher education, be considered near the 
campus of an institution of higher education. The Board solicits 
comment on other appropriate ways to determine a location that is 
considered near the campus of an institution of higher education.
---------------------------------------------------------------------------

    \49\ See, e.g., 18 U.S.C. 922(q)(2) (making it unlawful for an 
individual to possess an unlicensed firearm in a school zone, 
defined in 18 U.S.C. 921(a)(25) as within 1,000 feet of the school); 
the Family Smoking Prevention and Tobacco Control Act (Pub. L. 111-
31, June 22, 2009) (requiring regulations to ban outdoor tobacco 
advertisements within 1,000 feet of a school or playground); and 
Mass. Gen. Laws ch. 94C, Sec.  32J (requiring mandatory minimum term 
of imprisonment for drug violations committed within 1,000 feet of a 
school).
---------------------------------------------------------------------------

    Proposed comment 57(c)-4 would clarify that offers of tangible 
items mailed to a college student at an address on or near the campus 
of an institution of higher education would be subject to the 
restrictions in Sec.  226.57(c). The statutory language does not 
distinguish between different methods of making offers of tangible 
items, and proposed comment 57(c)-4 would make clear that offers of 
tangible items made on or near the campus of an institution of higher 
education for purposes of Sec.  226.57(c) include offers of tangible 
items that are sent to those locations through the mail.
    Furthermore, under proposed Sec.  226.57(c), an offer of a tangible 
item to induce a college student to apply for or open an open-end 
consumer credit plan may not be made at an event sponsored by or 
related to an institution of higher education. In order to give card 
issuers and creditors guidance on determining whether an event is 
related to an institution, the Board proposes comment 57(c)-5. Proposed 
comment 57(c)-5 would provide that an event is related to an 
institution of higher education if the marketing of such event uses the 
name, emblem, mascot, or logo of an institution of higher education, or 
other words, pictures, or symbols identified with an institution of 
higher education in a way that implies that the institution of higher 
education endorses or otherwise sponsors the event. The proposed 
comment was adapted from guidance the Board recently adopted in Sec.  
226.48 regarding co-branding restrictions for certain private education 
loans.
    Since the prohibition in Sec.  226.57(c) applies solely to offering 
a tangible item to a college student at specified locations, a card 
issuer or creditor would be permitted to offer any person who is not a 
college student a tangible item to induce such person to apply for or 
open an open-end consumer credit plan offered by such card issuer or 
creditor at such locations. The Board believes a card issuer or 
creditor who opts to have a marketing program on or near the campus of 
an institution of higher education, or at an event sponsored by or 
related to an institution of higher education where a tangible item 
will be offered to induce people to apply for or open an open-end 
consumer credit plan should have reasonable procedures for determining 
whether an applicant or participant is a college student before giving 
the applicant or participant the tangible item.
    Proposed comment 57(c)-6 illustrates one way in which a card issuer 
or creditor might meet this standard. Specifically, the Board provides 
that a card issuer or creditor may ask whether the applicant is a 
college student as part of the application process. Proposed comment 
57(c)-6 would also provide that the card issuer or creditor may rely on 
the representations made by the applicant Therefore, if an applicant 
misrepresents his or her status as a student, the card issuer or 
creditor would not violate Sec.  226.57(c) by relying on that 
representation.
57(d) Annual Report to the Board
    The Board proposes to implement new TILA Section 127(r)(2) in 
proposed Sec.  226.57(d). Consistent with the statute, proposed Sec.  
226.57(d) would require creditors that are a party to one or more

[[Page 54188]]

college credit card agreements to register with the Board and to submit 
annual reports to the Board regarding those agreements. Creditors that 
were a party to one or more college credit card agreements at any time 
during the 2009 calendar year would be required to register with the 
Board by February 1, 2010. The initial report from creditors would be 
due by February 22, 2010, as required by TILA Section 127(r)(2)(D). 
Creditors would be required to submit subsequent annual reports by the 
first business day on or after March 31 of the following year.
    Proposed Sec.  226.57(d) would require that annual report include a 
copy of each college credit card agreement to which the creditor was a 
party that was in effect during the period covered by the report, as 
well as certain related information including the total dollar amount 
of payments pursuant to the agreement from the creditor to the 
institution (or affiliated organization) during the period covered by 
the report, and how such amount is determined; the number of credit 
card accounts opened pursuant to the agreement during the period; and 
the total number of such credit card accounts that were open at the end 
of the period.
    The annual report would also be required to include a copy of any 
memorandum of understanding that ``directly or indirectly relates to 
the college credit card agreement or that controls or directs any 
obligations or distribution of benefits between any such entities.'' 
Proposed comment 57(d)(3)-1 would clarify what types of documents would 
be considered memoranda of understanding for purposes of this 
requirement, by providing that a memorandum of understanding includes 
any document that amends the college credit card agreement, or that 
constitutes a further agreement between the parties as to the 
interpretation or administration of the agreement, and by providing of 
examples of documents that would or would not be included.
    The Board solicits comment on whether additional items of 
information should be required to be included in the annual report. New 
TILA Section 127(r)(2)(A) specifies that the required annual report 
contain ``the terms and conditions'' of college credit card agreements 
between the card issuer and institutions of higher education or 
affiliated organizations. For example, information that may be part of 
the terms and conditions of a college credit card agreement and that, 
if so, could be required to be included in the report, could include 
any terms that differentiate between student and non-student accounts 
(for example, that provide for difference in payments based on whether 
an account is a student or non-student account), or that relate to 
advertising or marketing (such as provisions on mailing lists, online 
advertising, or on-campus marketing). The report could also be required 
to specify the terms and conditions of credit card accounts (for 
example, rates and fees) that may be opened in connection with the 
college credit card agreement. Inclusion of such information in 
issuers' annual reports could facilitate the Board's review of the 
reports and preparation of the Board's report to Congress concerning 
college credit card agreements, but could also impose additional costs 
on card issuers in preparing their reports to the Board. The Board 
requests comment on the costs and benefits of requiring these (or any 
other) items of information to be included in the annual report.

Section 226.58 Internet Posting of Credit Card Agreements

    Section 204 of the Credit Card Act adds new TILA Section 122(d) to 
require creditors to post agreements for open-end consumer credit card 
plans on the creditors' Web sites and to submit those agreements to the 
Board for posting on a publicly-available Web site established and 
maintained by the Board. 15 U.S.C. 1632(d). The Board proposes to 
implement these provisions in new Sec.  226.58.
58(a) Applicability
    Proposed Sec.  226.58(a) would make proposed Sec.  226.58 
applicable to any card issuer that issues a credit card under a credit 
card account under an open-end (not home-secured) consumer credit plan, 
as defined in proposed revised Sec.  226.2(a)(15). Thus, consistent 
with the approach the Board is proposing in implementing other sections 
of the Credit Card Act, home-equity lines of credit accessible by 
credit cards and overdraft lines of credit accessed by debit cards 
would not be covered by proposed Sec.  226.58.
58(b) Definitions
    Proposed Sec.  226.58(b)(1) defines ``agreement'' or ``credit card 
agreement'' as a written document or documents evidencing the terms of 
the legal obligation or the prospective legal obligation between a card 
issuer and a consumer for a credit card account under an open-end (not 
home-secured) consumer credit plan. As proposed, Sec.  226.58(b)(1) 
states and proposed comment 58(b)(1)-1 further clarifies that the 
agreement is deemed to include certain information, such as annual 
percentage rates and fees, even if the issuer does not otherwise 
technically include this information in the document evidencing the 
terms of the legal obligation. This information is listed under the 
defined term ``pricing information'' in Sec.  226.58(b)(4). The Board 
believes that, to enable consumers to shop for credit cards and compare 
information about various credit card plans in an effective manner, it 
is necessary that the credit card agreements posted on the Board's Web 
site include information such as rates and fees, in addition to other 
terms and conditions of the agreements. However, the Board solicits 
comment on the definition of agreement and on whether more or less 
information should be included. As proposed comment 58(b)(1)-2 would 
clarify, the agreement would not include documents that may be sent to 
the consumer along with the credit card or credit card agreement, such 
as a cover letter, a validation sticker on the card, other information 
about card security, offers for credit insurance or other optional 
products, advertisements, and disclosures required under Federal or 
State law that are not incorporated into the agreement itself.
    Proposed Sec.  226.58(b)(2) defines ``business day'' as a day on 
which the creditor's offices are open to the public for carrying on 
substantially all of its business functions. This is consistent with 
the definition of business day used in most other sections of 
Regulation Z.
    Proposed Sec.  226.58(b)(3) states that an issuer ``offers'' or 
``offers to the public'' an agreement if the issuer is soliciting or 
accepting applications for new accounts that would be subject to that 
agreement. As proposed comment 58(b)(3)-1 would clarify, a card issuer 
is deemed to offer a credit card agreement to the public even if the 
issuer solicits, or accepts applications from, only a limited group of 
persons. For example, an issuer may market affinity cards to students 
and alumni of a particular educational institution or solicit only 
high-net-worth individuals for a particular card, but the corresponding 
card agreements would be considered to be offered to the public. 
Proposed comment 58(b)(3)-2 would clarify that a card issuer is deemed 
to offer a credit card agreement to the public even if the terms of the 
agreement are changed immediately upon opening of an account to terms 
not offered to the public.
    Proposed Sec.  226.58(b)(4) defines the term ``pricing 
information'' to include: (1) The information under Sec.  
226.6(b)(2)(i) through (b)(2)(xii), (b)(3) and (b)(4) that is required 
to be

[[Page 54189]]

disclosed in writing pursuant to Sec.  226.5(a)(1)(ii); (2) the credit 
limit; and (3) the method used to calculate required minimum payments. 
This definition makes reference to the provisions of Sec.  226.6(b) as 
revised by the January 2009 Regulation Z Rule. While the effective date 
of proposed Sec.  226.58 would be February 22, 2010, the Board is 
soliciting comment regarding whether the July 1, 2010 mandatory 
compliance date of revised Sec.  226.6 should be retained, as discussed 
elsewhere in this proposal. If the July 1, 2010 mandatory compliance 
date for revised Sec.  226.6(b) is retained, the Board may make 
technical and conforming changes to proposed Sec.  226.58(b)(4) to 
account for the difference in mandatory compliance dates. However, the 
definition of pricing information for purposes of proposed Sec.  226.58 
would conform to the requirements of revised Sec.  226.6(b)(2)(i) 
through (b)(2)(xii), (b)(3) and (b)(4) beginning on February 22, 2010, 
even if compliance with portions of revised Sec.  226.6(b) is not 
mandatory until July 1, 2010.
58(c) Registration With Board
    Proposed Sec.  226.58(c) would require any card issuer that offered 
one or more credit card agreements as of December 31, 2009 to register 
with the Board, in the form and manner prescribed by the Board, no 
later than February 1, 2010. However, a card issuer that would have 
qualified for the de minimis exception under proposed Sec.  226.58(e) 
as of December 31, 2009, if proposed Sec.  226.58 had been in effect on 
that date, would not be required to register.
    The Board expects to provide additional details regarding the 
registration process in a document setting forth technical 
specifications for the credit card agreement posting requirements, to 
be posted on the Board's public Web site. The Board anticipates that 
issuers will register online through the Board's Web site and that 
registration will capture basic identifying information about each 
issuer, such as the issuer's name, address, and identifying number 
(e.g., RSSD ID number or tax identification number), and the name, 
phone number and e-mail address of a contact person at the issuer. The 
Board will contact the issuer to confirm that the issuer in fact 
authorized the registration.
    Proposed Sec.  226.58(c)(2) would provide that any issuer that is 
required to make a submission to the Board under Sec.  226.58(d) that 
has not previously registered with the Board must register with the 
Board at least 21 days before the quarterly submission deadline 
specified in Sec.  226.58(d)(1) on which the card issuer's first 
submission is due. As proposed comment 58(c)-1 would clarify, this 
provision would apply, for example, if a new credit card issuer is 
organized or if an existing issuer that previously qualified for the de 
minimis exception under Sec.  226.58(e) ceased to qualify. For example, 
a card issuer that previously qualified for the de minimis exception 
ceases to qualify as of September 30. That issuers first submission to 
the Board is due on October 31, the next quarterly submission deadline. 
The issuer must register with the Board at least 21 days before October 
31.
    Proposed Sec.  226.58(c)(3) would require card issuers that have 
registered with the Board under Sec.  226.58(c)(1) or (c)(2) to provide 
updated registration information to the Board no later than the first 
quarterly submission deadline specified in Sec.  226.58(d)(1) after the 
information changes. For example, as described in proposed comment 
58(c)-2, a card issuer that has already registered with the Board 
changes its address on October 15. The issuer must submit revised 
registration information advising the Board of the address change no 
later than October 31, the next quarterly submission deadline specified 
in Sec.  226.58(d)(1) after the change.
58(d) Submission of Agreements to Board
    Proposed Sec.  226.58(d) would require that each card issuer 
electronically submit the credit card agreements, as defined in 
proposed Sec.  226.58(b)(1), that the issuer offers, as defined in 
proposed Sec.  226.58(b)(2), to the Board on a quarterly basis. 
Consistent with new TILA Section 122(d)(3), the Board will post the 
credit card agreements it receives on its Web site.
    New TILA Section 122(d)(5) provides that the Board may establish 
exceptions to the requirements that credit card agreements be posted on 
creditors' Web sites and submitted to the Board for posting on its Web 
site in any case where the administrative burden outweighs the benefit 
of increased transparency. In addition, TILA Section 105(a) gives the 
Board authority to prescribe regulations containing provisions 
necessary or proper to effectuate the purposes of and to facilitate 
compliance with TILA. The Board believes that, with respect to credit 
card agreements that are not currently offered to the public, the 
administrative burden associated with submission for posting on the 
Board's Web site would outweigh the benefit of increased transparency. 
The Board also believes that providing an exception for agreements not 
currently offered to the public is appropriate both to effectuate the 
purposes of TILA and to facilitate compliance with TILA.
    The Board is aware that the number of credit card agreements 
currently in effect but no longer offered to the public is extremely 
large, and the Board believes that requiring issuers to prepare and 
submit these agreements would impose a significant burden on issuers. 
The Board also believes that the primary benefit of making credit card 
agreements available on the Board's Web site is to assist consumers in 
comparing credit card agreements offered by various issuers when 
shopping for a new credit card. Including agreements that are no longer 
offered to the public would not facilitate comparison shopping by 
consumers because consumers could not apply for cards subject to these 
agreements. In addition, including agreements no longer offered to the 
public would significantly increase the number of agreements included 
on the Board's Web site, possibly to include hundreds of thousands of 
agreements (or more). This volume of data would render the amount of 
data provided through the Web site too large to be helpful to most 
consumers. Thus, the Board is proposing that an issuer only submit to 
the Board under Sec.  226.58(d) those agreements that the issuer 
currently offers to the public.
58(d)(1) Quarterly Submissions
    Proposed Sec.  226.58(d)(1) would require issuers to make quarterly 
submissions to the Board, in the form and manner specified by the 
Board, that would contain: (1) The credit card agreements, as described 
in Appendix N, that the card issuer offered to the public as of the 
last business day of the preceding calendar quarter that the card 
issuer has not previously submitted to the Board; (2) any credit card 
agreement previously submitted to the Board that was modified or 
amended during the preceding calendar quarter, as described in proposed 
Sec.  226.58(d)(3); and (3) notification regarding any credit card 
agreement previously submitted to the Board that the issuer is 
withdrawing, as described in proposed Sec.  226.58(d)(4) and (e). 
Quarterly submissions to the Board would be due no later than the first 
business day on or after January 31, April 30, July 31, and October 31 
of each year.
    Proposed comment 58(d)-1 would give the following example: a card 
issuer has already submitted three credit card agreements to the Board. 
On October 15, the issuer stops offering agreement A. On November 20, 
the issuer makes changes to the terms of

[[Page 54190]]

agreement B. On December 1, the issuer starts offering a new agreement 
D. The issuer must submit to the Board no later than the first business 
day on or after January 31: (1) Notification that the issuer is 
withdrawing agreement A, because it is no longer offered to the public; 
(2) the revised version of agreement B; and (3) agreement D.
    As proposed comment 58(d)-2 would clarify, under proposed Sec.  
226.58(d)(1), an issuer is not required to make any submission to the 
Board at a particular quarterly submission deadline if, during the 
previous calendar quarter, the issuer did not take any of the following 
actions: (1) Offering a new credit card agreement that was not 
submitted to the Board previously; (2) revising or amending an 
agreement previously submitted to the Board; and (3) ceasing to offer 
an agreement previously submitted to the Board. For example, a card 
issuer offers five agreements to the public as of September 30 and 
submits these to the Board by October 31, as required by proposed Sec.  
226.58(d)(1). Between September 30 and December 31, the issuer 
continues to offer all five of these agreements to the public without 
amending or revising them and does not begin offering any new 
agreements. The issuer is not required to make any submission to the 
Board by the following January 31.
    The Board expects to provide additional details regarding the 
electronic submission process in the technical specifications document 
to be posted on the Board's public Web site.
58(d)(2) Timing of First Two Submissions
    Proposed Sec.  226.58(d)(2) would specify timing requirements for 
the first two submissions to the Board following the effective date. As 
described above, quarterly submissions to the Board generally are due 
no later than the first business day on or after January 31, April 30, 
July 31, and October 31 of each year. However, Section 3 of the Credit 
Card Act provides that new TILA Section 122(d) becomes effective on 
February 22, 2010, nine months after the date of enactment of the 
Credit Card Act. Thus, consistent with Section 3 of the Credit Card 
Act, proposed Sec.  226.58(d)(2) would require issuers to send their 
initial submissions, containing credit card agreements offered to the 
public as of December 31, 2009, to the Board no later than February 22, 
2010. Proposed Sec.  226.58(d)(2) would provide that the next 
submission must be sent to the Board no later than August 2, 2010 (the 
first business day on or after July 31, 2010), and must contain: (1) 
Any credit card agreements that the card issuer offered to the public 
as of June 30, 2010, that the card issuer has not previously submitted 
to the Board; (2) any credit card agreement previously submitted to the 
Board that was modified or amended after December 31, 2009, and on or 
before June 30, 2010, as described in proposed Sec.  226.58(d)(3); and 
(3) notification regarding any credit card agreement previously 
submitted to the Board that the issuer is withdrawing as of June 30, 
2010, as described in proposed Sec.  226.58(d)(4) and (e).
    For example, as of December 31, 2009, a card issuer offers three 
agreements. The issuer is required to submit these agreements to the 
Board no later than February 22, 2010. On March 10, 2010, the issuer 
begins offering a new agreement. In general, an issuer that begins 
offering a new agreement on March 10 of a given year would be required 
to submit that agreement to the Board no later than April 30 of that 
year. However, under proposed Sec.  226.58(d)(2), no submission to the 
Board would be due on April 30, 2010, and the issuer instead would be 
required to submit the new agreement no later than August 2, 2010.
58(d)(3) Changes To Agreements
    Under proposed Sec.  226.58(d)(3), if a credit card agreement has 
been submitted to the Board, no changes have been made to the 
agreement, and the card issuer continues to offer the agreement to the 
public, no additional submission of that agreement is required. For 
example, as described in proposed comment 58(d)-3, a credit card issuer 
begins offering an agreement in October and submits the agreement to 
the Board the following January 31, as required by proposed Sec.  
226.58(d)(1). As of March 31, the issuer has not revised or amended the 
agreement and is still offering the agreement to the public. The issuer 
is not required to submit anything to the Board regarding that 
agreement by April 30.
    If an issuer makes changes to a credit card agreement previously 
submitted to the Board (including changes to the provisions of the 
agreement, the pricing information, or both), proposed Sec.  
226.58(d)(3) would require the card issuer to submit the entire revised 
agreement to the Board by the first quarterly submission deadline after 
the last day of the calendar quarter in which the change becomes 
effective. Proposed comment 58(d)-4 would give the following example: 
an issuer submits an agreement to the Board on October 31. On November 
15, the issuer changes the method used to calculate required minimum 
payments under the agreement. Because an element of the pricing 
information has changed, the issuer must submit the entire revised 
agreement to the Board no later than January 31 of the following year.
    As proposed, Sec.  226.58(d)(3) would require credit card issuers 
to resubmit agreements following any change, regardless of whether that 
change affects the substance of the agreement. The Board recognizes 
that requiring issuers to resubmit agreements following nonsubstantive 
changes could impose a substantial burden on issuers with no 
corresponding benefit to consumers. The Board solicits comment on 
whether issuers are likely to make technical changes to agreements 
without simultaneously making substantive changes, whether requiring 
issuers to resubmit agreements following any change (however minor) 
would impose a significant burden, and what standard the Board should 
use to determine what changes merit resubmission of an agreement.
    As proposed comment 58(d)-5 would explain, an issuer may not 
fulfill the requirement to submit the entire revised agreement to the 
Board by submitting a change-in-terms or similar notice covering only 
the terms that have changed. Amendments and revisions would be required 
to be integrated into the text of the agreement (or the single addendum 
described in proposed Appendix N, if applicable), not provided as 
separate riders. For example, an issuer changes the purchase APR 
associated with an agreement the issuer has previously submitted to the 
Board. The purchase APR for that agreement was included in an addendum 
of pricing information as described in proposed Appendix N. The issuer 
may not submit a change-in-terms or similar notice reflecting the 
change in APR, either alone or accompanied by the original text of the 
agreement and original addendum of pricing information. Instead, the 
issuer must revise the addendum of pricing information to reflect the 
change in APR and submit to the Board the entire text of the agreement 
and the entire revised addendum, even though no changes have been made 
to the provisions of the agreement and only one item on the addendum 
has changed.
    The Board believes that permitting issuers to submit change-in-
terms notices or riders containing amendments and revisions would make 
it difficult for consumers to determine what provisions and pricing 
information are currently offered by issuers. Consumers would be 
required to sift through change-in-terms notices and riders in an 
attempt to assemble a

[[Page 54191]]

coherent picture of the terms currently offered. The Board believes 
that issuers are better placed than consumers to assemble this 
information. While the Board understands that this may somewhat 
increase the burden on issuers, the Board believes that the 
corresponding benefit of increased transparency for consumers outweighs 
this burden.
58(d)(4) Withdrawal of Agreements
    Proposed Sec.  226.58(d)(4) would require an issuer to notify the 
Board if any agreement previously submitted to the Board by that issuer 
is no longer offered to the public by the first quarterly submission 
deadline after the last day of the calendar quarter in which the issuer 
ceased to offer the agreement. For example, as described in proposed 
comment 58(d)-6, on January 5 an issuer stops offering to the public an 
agreement it previously submitted to the Board. The issuer must notify 
the Board that the agreement is being withdrawn by April 30, the first 
quarterly submission deadline after March 31, the last day of the 
calendar quarter in which the issuer stopped offering the agreement.
58(e) De Minimis Exception
    New TILA Section 122(d)(5) provides that the Board may establish 
exceptions to the requirements that credit card agreements be posted on 
creditors' Web sites and submitted to the Board for posting on the 
Board's Web site in any case where the administrative burden outweighs 
the benefit of increased transparency, such as where a credit card plan 
has a de minimis number of consumer account holders. The Board believes 
that a de minimis exception to these requirements is appropriate, but 
believes that it may not be feasible to base such an exception on the 
number of accounts under a credit card plan. In particular, the Board 
is not aware of a way to define ``credit card plan'' that would not 
divide issuer's portfolios into such small units that large numbers of 
credit card agreements could fall under the de minimis exception.
    The Board therefore proposes to establish a de minimis exception in 
proposed Sec.  226.58(e) based on an issuer's total number of open 
accounts. Under proposed Sec.  226.58(e)(1), an issuer would not be 
required to submit any credit card agreements to the Board under 
proposed Sec.  226.58(d) if the card issuer has fewer than 10,000 open 
credit card accounts under open-end (not home-secured) consumer credit 
plans, as of the last business day of the calendar quarter. For 
example, as described in proposed comment 58(e)-1, an issuer offers 
five credit card agreements to the public as of September 30. However, 
the issuer has only 2,000 open credit card accounts under open-end (not 
home-secured) consumer credit plans as of September 30. The issuer is 
not required to submit any agreements to the Board by October 31 
because the issuer qualifies for the de minimis exception.
    Proposed comment 58(e)-2 would clarify that, for purposes of the de 
minimis exception, a credit card account is considered to be open even 
if the account is inactive, as long as the account has not been closed 
by the cardholder or the card issuer and the cardholder can obtain 
extensions of credit on the account. If an account has been closed for 
new activity (for example, due to default by the cardholder), but the 
cardholder is still making payments to pay off the outstanding balance, 
the account need not be considered open. If an account has only 
temporarily been suspended (for example, due to a report of 
unauthorized use), the account is considered open.
    As proposed comment 58(e)-3 would clarify, whether an issuer 
qualifies for the de minimis exception would be determined as of the 
last business day of each calendar quarter. For example, as of December 
31, an issuer offers three agreements to the public and has 9,500 open 
credit card accounts under open end (not home secured) consumer credit 
plans. As of January 30, the issuer still offers three agreements, but 
has 10,100 open accounts. As of March 31, the issuer still offers three 
agreements, but has only 9,700 open accounts. Even though the issuer 
had 10,100 open accounts at one time during the calendar quarter, the 
issuer qualifies for the de minimis exception because the number of 
open accounts was less than 10,000 as of March 31. The issuer therefore 
is not required to submit any agreements to the Board under Sec.  
226.58(d) by April 30.
    The Board believes that the administrative burden on issuers of 
preparing and submitting such agreements would outweigh the benefit of 
increased transparency from including those agreements on the Board's 
Web site, but the Board solicits comment on the 10,000 open accounts 
threshold for the de minimis exception. In addition, the Board 
recognizes that the proposed de minimis exception would not alleviate 
the administrative burden on large issuers of submitting agreements for 
credit card plans with a very small number of open accounts. The Board 
solicits comments on whether the Board should create a de minimis 
exception applicable to a small credit card plan offered by an issuer 
of any size, and if so how the Board should define ``credit card plan'' 
for purposes of such an exception.
    Proposed Sec.  226.58(e)(2) would specify that if an issuer that 
previously qualified for the de minimis exception ceases to qualify, 
the card issuer must begin making quarterly submissions to the Board 
under Sec.  226.58(d) no later than the first quarterly submission 
deadline after the date as of which the issuer ceased to qualify. As 
proposed comment 58(e)-4 would clarify, whether an issuer has ceased to 
qualify for the de minimis exception under proposed Sec.  226.58(e)(2) 
would be determined as of the last business day of the calendar 
quarter, as indicated in proposed Sec.  226.58(e)(1). For example, as 
of June 30, an issuer offers three agreements to the public and has 
9,500 credit card accounts under open-end (not home-secured) consumer 
credit plans. The issuer is not required to submit any agreements to 
the Board under Sec.  226.58(d) because the issuer qualifies for the de 
minimis exception. As of July 15, the issuer still offers the same 
three agreements, but now has 10,000 open accounts. The issuer is not 
required to take any action at this time, because whether an issuer 
qualifies for the de minimis exception under proposed Sec.  
226.58(e)(1) is determined as of the last business day of the calendar 
quarter. As of September 30, the issuer still offers the same three 
agreements and still has 10,000 open accounts. Because the issuer had 
10,000 open accounts as of September 30, the issuer ceased to qualify 
for the de minimis exception and must submit the three agreements it 
offers to the Board by October 31, the next quarterly submission 
deadline.
    Proposed Sec.  226.58(e)(3) would provide that if a card issuer 
that did not previously qualify comes within the de minimis exception, 
the card issuer may, but is not required to, notify the Board that the 
card issuer is withdrawing each agreement the card issuer previously 
submitted to the Board. Until the issuer notifies the Board that each 
agreement it previously submitted is being withdrawn, the issuer must 
continue to make quarterly submissions to the Board under Sec.  
226.58(d) and to provide updated registration information under Sec.  
226.58(c)(3). Proposed comment 58(e)-5 would give the following 
example: an issuer has 10,001 open accounts and offers three agreements 
to the public as of December 31. The issuer has registered with the 
Board and submitted each of the three agreements to the Board as 
required under Sec.  226.58(c) and

[[Page 54192]]

(d). As of March 31, the issuer has only 9,999 open accounts. The 
issuer has two options. First, the issuer may notify the Board that the 
issuer is withdrawing each of the three agreements it previously 
submitted. Once the issuer has notified the Board, the issuer is no 
longer required to make quarterly submissions to the Board under Sec.  
226.58(d) or to provide updated registration information to the Board 
under Sec.  226.58(c)(3). Alternatively, the issuer may choose not to 
notify the Board that it is withdrawing its agreements. In this case, 
the issuer must continue making quarterly submissions to the Board 
under Sec.  226.58(d) and providing updated registration information to 
the Board under Sec.  226.58(c)(3). The issuer might choose not to 
withdraw its agreements if, for example, the issuer believes that it 
will likely cease to qualify for the de minimis exception again in the 
near future.
58(f) Agreements Posted on Card Issuer's Web Site
    In addition to requiring that card issuers submit credit card 
agreements to the Board for posting on the Board's Web site, new TILA 
Section 122(d) requires that each issuer post the credit card 
agreements to which it is a party on its own Web site. The Board 
proposes to implement this requirement in proposed Sec.  226.58(f).
    Proposed Sec.  226.58(f) would set out two requirements. First, 
under proposed Sec.  226.58(f)(1), each issuer would be required to 
post on its publicly available Web site the same agreements it is 
required to submit to the Board under proposed Sec.  226.58(d) (i.e., 
the agreements the issuer offers to the public). An issuer that is not 
required to submit agreements to the Board under proposed Sec.  
226.58(d) because it qualifies for the de minimis exception under 
proposed Sec.  226.58(e) would not be subject to this requirement.
    Second, under proposed Sec.  226.58(f)(2), each issuer would be 
required to provide each individual cardholder with access to his or 
her specific credit card agreement, by either: (1) Posting and 
maintaining the individual cardholder's agreement on the issuer's Web 
site; or (2) making a copy of each cardholder's agreement available to 
the cardholder upon that cardholder's request. If a card issuer chooses 
to make agreements available upon request, the issuer would be required 
to provide the cardholder with the ability to request a copy of the 
agreement both: (1) By using the issuer's Web site (such as by clicking 
on a clearly identified box to make the request); and (2) by calling a 
toll free telephone number displayed on the Web site and clearly 
identified as to purpose. Proposed comment 58(f)(2)-1 would clarify 
that agreements provided upon request may be provided in either 
electronic or paper form, regardless of the form of the cardholder's 
request. Whether provided electronically or in paper form, agreements 
must be provided in a typeface that is clear and legible.
    As proposed comment 58(f)-2 would clarify, the requirement to 
provide access to credit card agreements under proposed Sec.  
226.58(f)(2) would apply to all open credit card accounts under open-
end (not home-secured) consumer credit plans, regardless of whether 
such agreements are required to be submitted to the Board pursuant to 
proposed Sec.  226.58(d). For example, an issuer that is not required 
to submit agreements to the Board because it qualifies for the de 
minimis exception under Sec.  226.58(e) would still be required to 
provide cardholders with access to their specific agreements under 
Sec.  226.58(f)(2). Similarly, an agreement that is no longer offered 
to the public would not be required to be submitted to the Board under 
Sec.  226.58(d), but would still need to be provided to the cardholder 
to whom it applies under Sec.  226.58(f)(2).
    As described above, the Board proposes to exercise its authority to 
create exceptions from the requirements of new TILA Section 122(d) with 
respect to the submission of certain agreements to the Board for 
posting on the Board's Web site. However, the Board believes that it 
would not be appropriate to apply these exceptions to the requirement 
that issuers provide cardholders with access to their specific credit 
card agreement through the issuer's Web site. In particular, the Board 
believes that, for the reasons discussed above, posting credit card 
agreements that are not currently offered to the public on the Board's 
Web site would not be beneficial to consumers. However, the Board 
believes that the benefit of increased transparency of providing an 
individual cardholder access to his or her specific credit card 
agreement is substantial regardless of whether the cardholder's 
agreement continues to be offered by the issuer. The Board believes 
that this benefit outweighs the administrative burden on issuers of 
providing such access, and the Board therefore is not proposing to 
exempt agreements that are not offered to the public from the 
requirements of proposed Sec.  226.58(f)(2). Similarly, the proposal 
provides that card issuers with fewer than 10,000 open credit card 
accounts under open-end (not home-secured) consumer credit plans would 
not be required to submit agreements to the Board. However, the Board 
believes that the benefit of increased transparency associated with 
providing an individual cardholder with access to his or her specific 
credit card agreement is substantial regardless of the number of the 
card issuer's open accounts. The Board believes that this benefit of 
increased transparency for consumers outweighs the administrative 
burden on issuers of providing such access, and the Board therefore is 
not proposing to apply the de minimis exception to the requirements of 
proposed Sec.  226.58(f)(2).
    The Board is providing issuers with the option to make copies of 
cardholder agreements available on request because the Board believes 
that the benefit of increased transparency associated with immediate 
access to cardholder agreements, as compared to access after a brief 
waiting period, would not outweigh the administrative burden on issuers 
of providing immediate access. The Board believes that the 
administrative burden associated with posting each cardholder's credit 
card agreement on the issuer's Web site may be substantial for some 
issuers. In particular, the Board notes that some smaller institutions 
with limited information technology resources could find a requirement 
to post all cardholder's agreements to be a significant burden. The 
Board understands that it is important that all cardholders be able to 
obtain copies of their credit card agreements promptly, and proposed 
Sec.  226.58(f)(2) would ensure that this occurs.
    If a card issuer chooses to make agreements available upon request 
under proposed Sec.  226.58(f)(2)(ii), the card issuer would be 
required to send to the cardholder or otherwise make available to the 
cardholder a copy of the cardholder's agreement no later than 10 
business days after the issuer receives the cardholder's request. As 
proposed comment 58(f)(2)-3 would clarify, if, for example, an issuer 
chooses to respond to a cardholder's request by mailing a paper copy of 
the cardholder's agreement, the issuer would be required to mail the 
agreement no later than 10 business days after receipt of the 
cardholder's request. Alternatively, if an issuer chooses to respond to 
a cardholder's request by posting the cardholder's agreement on the 
issuer's Web site, the issuer must post the agreement on its Web site 
no later than 10 business days after receipt of the cardholder's 
request. The Board believes that requiring issuers to provide 
cardholder's agreements within 10 business days gives card issuers

[[Page 54193]]

adequate time to respond to requests while providing cardholders with 
prompt access to their credit card agreements. The Board solicits 
comments regarding whether issuers should have a shorter or longer 
period in which to respond to cardholder requests.
    Proposed Sec.  226.58(f)(3) would state that credit card issuers 
may provide credit card agreements in electronic form under Sec.  
226.58(f)(1) and (f)(2) without regard to the consumer notice and 
consent requirements of Section 101(c) of the E-Sign Act. Because new 
TILA Section 122(d) specifies that credit card issuers must provide 
access to cardholder agreements on the issuer's Web site, the Board 
believes that the requirements of the E-Sign Act do not apply.

Appendix M1--Repayment Disclosures

    As discussed in the section-by-section analysis to proposed Sec.  
226.7(b)(12), TILA Section 127(b)(11), as added by Section 1301(a) of 
the Bankruptcy Act, required creditors, the FTC and the Board to 
establish and maintain toll-free telephone numbers in certain instances 
in order to provide consumers with an estimate of the time it will take 
to repay the consumer's outstanding balance, assuming the consumer 
makes only minimum payments on the account and the consumer does not 
make any more draws on the account. 15 U.S.C. 1637(b)(11)(F). The Act 
required creditors, the FTC and the Board to provide estimates that are 
based on tables created by the Board that estimate repayment periods 
for different minimum monthly payment amounts, interest rates, and 
outstanding balances. In the January 2009 Regulation Z Rule, instead of 
issuing a table, the Board issued guidance in Appendix M1 to part 226 
to card issuers and the FTC for how to calculate this generic repayment 
estimate. The Board would use the same guidance to calculate the 
generic repayment estimates given through its toll-free telephone 
number.
    TILA Section 127(b)(11), as added by Section 1301(a) of the 
Bankruptcy Act, provided that a creditor may use a toll-free telephone 
number to provide the actual number of months that it will take 
consumers to repay their outstanding balance instead of providing an 
estimate based on the Board-created table (``actual repayment 
disclosure''). 15 U.S.C. 1637(b)(11)(I)-(K). In the January 2009 
Regulation Z Rule, the Board implemented that statutory provision and 
also provided card issuers with the option to provide the actual 
repayment disclosure on the periodic statement instead of through a 
toll-free telephone number. In the January 2009 Regulation Z Rule, the 
Board adopted new Appendix M2 to part 226 to provide guidance to 
issuers on how to calculate the actual repayment disclosure.
    As discussed in more detail in the section-by-section analysis to 
proposed Sec.  226.7(b)(12), the Credit Card Act substantially revised 
Section 127(b)(11) of TILA. Specifically, Section 201 of the Credit 
Card Act amends TILA Section 127(b)(11) to provide that creditors that 
extend open-end credit must provide the following disclosures on each 
periodic statement: (1) A ``warning'' statement indicating that making 
only the minimum payment will increase the interest the consumer pays 
and the time it takes to repay the consumer's balance; (2) the number 
of months that it would take to repay the outstanding balance if the 
consumer pays only the required minimum monthly payments and if no 
further advances are made; (3) the total cost to the consumer, 
including interest and principal payments, of paying that balance in 
full, if the consumer pays only the required minimum monthly payments 
and if no further advances are made; (4) the monthly payment amount 
that would be required for the consumer to pay off the outstanding 
balance in 36 months, if no further advances are made, and the total 
cost to the consumer, including interest and principal payments, of 
paying that balance in full if the consumer pays the balance over 36 
months; and (5) a toll-free telephone number at which the consumer may 
receive information about credit counseling and debt management 
services. For ease of reference, this supplementary information will 
refer to the above disclosures in the Credit Card Act as ``the 
repayment disclosures.''
    As discussed in more detail in the section-by-section analysis to 
proposed Sec.  226.7(b)(12), the Board proposes to limit the repayment 
disclosure requirements to credit card accounts under open-end (not 
home-secured) consumer credit plans, as that term is defined in 
proposed Sec.  226.2(a)(15)(ii). The Board proposes to adopt in 
proposed Appendix M1 to part 226 guidance for calculating the repayment 
disclosures.
    Calculating the minimum payment repayment estimate. The minimum 
payment repayment estimate would be an estimate of the number of months 
that it would take to pay the outstanding balance shown on the periodic 
statement, if the consumer pays only the required minimum monthly 
payments and if no further advances are made. The guidance in proposed 
Appendix M1 to part 226 for calculating the minimum payment repayment 
estimate would be similar to the guidance that the Board adopted in 
Appendix M2 to part 226 in the January 2009 Regulation Z Rule for 
calculating the actual repayment disclosure. The Board proposes that 
credit card issuers generally calculate the minimum payment repayment 
estimate for a consumer based on the minimum payment formula(s), the 
APRs and the outstanding balance currently applicable to a consumer's 
account. For other terms that may impact the calculation of the minimum 
payment repayment estimate, the Board proposes to allow issuers to make 
certain assumption about these terms.
    1. Minimum payment formulas. When calculating the minimum payment 
repayment estimate, the Board proposes that credit card issuers 
generally must use the minimum payment formula(s) that apply to a 
cardholder's account. Proposed Appendix M1 to part 226 provides that in 
calculating the minimum payment repayment estimate, if more than one 
minimum payment formula applies to an account, the issuer must apply 
each minimum payment formula to the portion of the balance to which the 
formula applies. In providing the minimum payment repayment estimate, 
an issuer must disclose the longest repayment period calculated. For 
example, assume that an issuer uses one minimum payment formula to 
calculate the minimum payment amount for a general revolving feature, 
and another minimum payment formula to calculate the minimum payment 
amount for special purchases, such as a ``club plan purchase.'' Also, 
assume that based on a consumer's balances in these features, the 
repayment period calculated pursuant to proposed Appendix M1 to part 
226 for the general revolving feature is 5 years, while the repayment 
period calculated for the special purchase feature is 3 years. This 
issuer must disclose 5 years as the repayment period for the entire 
balance to the consumer. This proposal differs from the approach 
adopted in the January 2009 Regulation Z Rule, which permitted card 
issuers the option to disclose either the longest repayment period 
calculated or the repayment period calculated for each minimum payment 
formula, when disclosing the actual repayment disclosures through a 
toll-free telephone number. The Board believes that allowing card 
issuers to disclose on the periodic statement the repayment period 
calculated for each minimum payment formula might create ``information 
overload'' for consumers and might distract the consumer from

[[Page 54194]]

other important information that is contained on the periodic 
statement.
    Under proposed Appendix M1 to part 226, card issuers would be 
allowed to disregard promotional terms related to payments, such as 
deferred billing promotional plans and skip payment features. The Board 
notes that allowing issuers to disregard promotional payment terms on 
accounts where the promotional payment terms apply only for a limited 
amount of time eases compliance burden on issuers, without a 
significant impact on the accuracy of the repayment estimates for 
consumers.
    2. Annual percentage rates. Generally, when calculating the minimum 
payment repayment estimate, the proposal would require credit card 
issuers to use each of the APRs that currently apply to a consumer's 
account, based on the portion of the balance to which that rate 
applies.
    TILA Section 127(b)(11), as revised by the Credit Card Act, 
specifically requires that in calculating the minimum payment repayment 
estimate, if the interest rate in effect on the date on which the 
disclosure is made is a temporary rate that will change under a 
contractual provision applying an index or formula for subsequent 
interest rate adjustments, the creditor must apply the interest rate in 
effect on the date on which the disclosure is made for as long as that 
interest rate will apply under that contractual provision, and then 
apply an interest rate based on the index or formula in effect on the 
applicable billing date.
    Consistent with TILA Section 127(b)(11), as revised by the Credit 
Card Act, under proposed Appendix M1 to part 226, the term 
``promotional terms'' would be defined as ``terms of a cardholder's 
account that will expire in a fixed period of time, as set forth by the 
card issuer.'' The term ``deferred interest or similar plan'' would 
mean a plan where a consumer will not be obligated to pay interest that 
accrues on balances or transactions if those balances or transactions 
are paid in full prior to the expiration of a specified period of time. 
If any promotional APRs apply to a cardholder's account, other than 
deferred interest or similar plans, a credit card issuer in calculating 
the minimum payment repayment estimate would be required to apply the 
promotional APR(s) until it expires and then must apply the rate that 
applies after the promotional rate(s) expires. If the rate that applies 
after the promotional rate(s) expires is a variable rate, a card issuer 
would be required to calculate that rate based on the applicable index 
or formula. This variable rate would be considered accurate if it was 
in effect within the last 30 days before the minimum payment repayment 
estimate is provided.
    For deferred interest or similar plans, if minimum payments under 
the plan will repay the balances or transactions prior to the 
expiration of the specified period of time, a card issuer must assume 
that the consumer will not be obligated to pay the accrued interest. 
This means, in calculating the minimum payment repayment estimate, the 
card issuer must apply a zero percent APR to the balance subject to the 
deferred interest or similar plan. If, however, minimum payments under 
the deferred interest or similar plan may not repay the balances or 
transactions in full prior to the expiration of the specified period of 
time, a credit card issuer must assume that a consumer will not repay 
the balances or transactions in full prior to the expiration of the 
specified period and thus the consumer will be obligated to pay the 
accrued interest. This means, in calculating the minimum payment 
repayment estimate, the card issuer must apply the APR at which 
interest is accruing to the balance subject to the deferred interest or 
similar plan.
    For example, assume under a deferred interest plan, a card issuer 
will not charge interest on a certain purchase if the consumer repays 
that purchase amount within 12 months. Also, assume that under the 
account agreement, the minimum payments for the deferred interest plan 
are calculated as \1/12\ of the purchase amount, such that if the 
consumer makes timely minimum payments each month for 12 months, the 
purchase amount will be paid off by the end of the deferred interest 
period. In this case, the card issuer must assume that the consumer 
will not be obligated to pay the deferred interest. This means, in 
calculating the minimum payment repayment estimate, the card issuer 
must apply a zero percent APR to the balance subject to the deferred 
interest plan. On the other hand, if under the account agreement, the 
minimum payments for the deferred interest plan may not necessarily 
repay the purchase balance within the deferred interest period (such as 
where the minimum payments are calculated as 3 percent of the 
outstanding balance), a credit card issuer must assume that a consumer 
will not repay the balances or transactions in full by the specified 
date and thus the consumer will be obligated to pay the deferred 
interest. This means, in calculating the minimum payment repayment 
estimate, the card issuer must apply the APR at which deferred interest 
is accruing to the balance subject to the deferred interest plan.
    This proposed approach with respect to deferred interest or similar 
plans is consistent with the assumption that only minimum payments are 
made in repaying the balance on the account.
    3. Outstanding balance. When calculating the minimum payment 
repayment estimate, the Board proposes that credit card issuers must 
use the outstanding balance on a consumer's account as of the closing 
date of the last billing cycle. Issuers would not be required to take 
into account any transactions consumers may have made since the last 
billing cycle. The Board believes that this proposed approach would 
make it easier for consumers to understand the minimum payment 
repayment estimate, because the outstanding balance used to calculate 
the minimum payment repayment estimate would be the same as the 
outstanding balance shown on the periodic statement. Under the 
proposal, issuers would be allowed to round the outstanding balance to 
the nearest whole dollar to calculate the minimum payment repayment 
estimate.
    4. Other terms. As discussed above, the Board proposes in Appendix 
M1 to part 226 that issuers must calculate the minimum payment 
repayment estimate for a consumer based on the minimum payment 
formulas(s), the APRs and the outstanding balance currently applicable 
to a consumer's account. For other terms that may impact the 
calculation of the minimum payment repayment estimate, the Board 
proposes to allow issuers to make certain assumptions about these 
terms.
    a. Balance computation method. The Board proposes to allow issuers 
to use the average daily balance method for purposes of calculating the 
minimum payment repayment estimate. The average daily balance method is 
commonly used by issuers to compute the balance on credit card 
accounts. Nonetheless, requiring use of the average daily balance 
method makes other assumptions necessary, including the length of the 
billing cycle, and when payments are made. The Board proposes to allow 
an issuer to assume a monthly or daily periodic rate applies to the 
account. If a daily periodic rate is used, the issuer would be allowed 
to assume either (1) a year is 365 days long, and all months are 
30.41667 days long, or (2) a year is 360 days long, and all months are 
30 days long. Both sets of assumptions about the length of the year and 
months would yield the same repayment estimates. The Board also 
proposes to allow issuers to assume that payments are credited on the 
last day of the month.

[[Page 54195]]

    b. Grace period. In proposed Appendix M1 to part 226, the Board 
proposes to allow issuers to assume that no grace period exists. The 
required disclosures about the effect of making minimum payments are 
based on the assumption that the consumer will be ``revolving'' or 
carrying a balance. Thus, it seems reasonable to assume that the 
account is already in a revolving condition at the time the minimum 
payment repayment estimate is disclosed on the periodic statement, and 
that no grace period applies. This proposed assumption about the grace 
period is also consistent with the proposed rule to exempt issuers from 
providing the minimum payment repayment estimate to consumers that have 
paid their balances in full for two consecutive months.
    c. Residual interest. When the consumer's account balance at the 
end of a billing cycle is less than the required minimum payment, the 
Board proposes to allow an issuer to assume that no additional 
transactions occurred after the end of the billing cycle, that the 
account balance will be paid in full, and that no additional finance 
charges will be applied to the account between the date the statement 
was issued and the date of the final payment. These assumptions are 
necessary to have a finite solution to the repayment period 
calculation. Without these assumptions, the repayment period could be 
infinite.
    d. Minimum payments are made each month. In proposed Appendix M1 to 
part 226, issuers would be allowed to assume that minimum payments are 
made each month and any debt cancellation or suspension agreements or 
skip payment features do not apply to a consumer's account. The Board 
believes that this assumption will ease compliance burden on issuers, 
without a significant impact on the accuracy of the repayment estimates 
for consumers.
    e. APR will not change. TILA Section 127(b)(11), as revised by the 
Credit Card Act, provides that in calculating the minimum payment 
repayment estimate, a creditor must apply the interest rate or rates in 
effect on the date on which the disclosure is made until the date on 
which the balance would be paid in full. Nonetheless, if the interest 
rate in effect on the date on which the disclosure is made is a 
temporary rate that will change under a contractual provision applying 
an index or formula for subsequent interest rate adjustment, the 
creditor must apply the interest rate in effect on the date on which 
the disclosure is made for as long as that interest rate will apply 
under that contractual provision, and then apply an interest rate based 
on the index or formula in effect on the applicable billing date. As 
discussed above, if any promotional APRs apply to a cardholder's 
account, other than deferred interest or similar plans, a credit card 
issuer in calculating the minimum payment repayment estimate would be 
required to apply the promotional APR(s) until it expires and then must 
apply the rate that applies after the promotional rate(s) expires. If 
the rate that applies after the promotional rate(s) expires is a 
variable rate, a card issuer would be required to calculate that rate 
based on the applicable index or formula. This variable rate would be 
considered accurate if it was in effect within the last 30 days before 
the minimum payment repayment estimate is provided. For deferred 
interest or similar plans, if minimum payments under the plan will 
repay the balances or transactions in full prior to the expiration of 
the specified period of time, a card issuer must assume that the 
consumer will not be obligated to pay the accrued interest. This means, 
in calculating the minimum payment repayment estimate, the card issuer 
must apply a zero percent APR to the balance subject to the deferred 
interest or similar plan. If, however, minimum payments under the 
deferred interest or similar plan may not repay the balances or 
transactions in full by the expiration of the specified period of time, 
a credit card issuer must assume that a consumer will not repay the 
balances or transactions in full prior to the expiration of the 
specified period of time and thus the consumer will be obligated to pay 
the accrued interest. This means, in calculating the minimum payment 
repayment estimate, the card issuer must apply the APR at which 
interest is accruing (or deferred interest is accruing) to the balance 
subject to the deferred interest or interest waiver plan.
    Consistent with TILA Section 127(b)(11), as revised by the Credit 
Card Act, the Board proposes to allow issuers to assume that the APR on 
the account will not change either through the operation of a variable 
rate or the change to a rate, except with respect to promotional APRs 
as discussed above. For example, if a penalty APR currently applies to 
a consumer's account, an issuer would be allowed to assume that the 
penalty APR will apply to the consumer's account indefinitely, even if 
the consumer may potentially return to a non-penalty APR in the future 
under the account agreement.
    f. Payment allocation. In proposed Appendix M1 to part 226, the 
Board proposes to allow issuers to assume that payments are allocated 
to lower APR balances before higher APR balances when multiple APRs 
apply to an account. As discussed in the section-by-section analysis to 
proposed Sec.  226.53, the proposed rule would permit issuers to 
allocated minimum payment amounts as they choose; however, issuers 
would be restricted in how they may allocate payments above the minimum 
payment amount. The Board assumes that issuers are likely to allocate 
the minimum payment amount to lower APR balances before higher APR 
balances, and issuers may assume that is the case in calculating the 
minimum payment repayment estimate.
    g. Account not past due and the account balance does not exceed the 
credit limit. The proposed rule would allow issuers to assume that the 
consumer's account is not past due and the account balance is not over 
the credit limit. The Board believes that this assumption will ease 
compliance burden on issuers, without a significant impact on the 
accuracy of the repayment estimates for consumers.
    h. Rounding assumed payments, current balance and interest charges 
to the nearest cent. Under proposed Appendix M1 to part 226, when 
calculating the minimum payment repayment estimate, an issuer would be 
permitted to round to the nearest cent the assumed payments, current 
balance and interest charges for each month, as shown in proposed 
Appendix M2 to part 226.
    5. Tolerances. The Board proposes to provide that the minimum 
payment repayment estimate calculated by an issuer will be considered 
accurate if it is not more than 2 months above or below the minimum 
payment repayment estimate determined in accordance with the guidance 
in proposed Appendix M1 to part 226, prior to rounding. This proposed 
tolerance would prevent small variations in the calculation of the 
minimum payment repayment estimate from causing a disclosure to be 
inaccurate. Take, for example, a minimum payment formula of the greater 
of 2 percent or $20 and two separate amortization calculations that, at 
the end of 28 months, arrived at remaining balances of $20 and $20.01 
respectively. The $20 remaining balance would be paid off in the 29th 
month, resulting in the disclosure of a 2-year repayment period due to 
the Board's proposed rounding rule set forth in proposed Sec.  
226.7(b)(12)(i)(B). The $20.01 remaining balance would be paid off in 
the 30th month, resulting in the disclosure of a 3-year repayment 
period due to the Board's proposed rounding rule. Thus, in the example 
above, an issuer would be in compliance with the

[[Page 54196]]

guidance in proposed Appendix M1 to part 226 by disclosing 3 years, 
instead of 2 years, because the issuer's estimate is within the 2 
months' tolerance, prior to rounding. In addition, the proposed rule 
also provides that even if an issuer's estimate is more than 2 months 
above or below the minimum payment repayment estimate calculated using 
the guidance in proposed Appendix M1 to part 226, so long as the issuer 
discloses the correct number of years to the consumer based on the 
rounding rule set forth in proposed Sec.  226.7(b)(12)(i)(B), the 
issuer would be in compliance with the guidance in proposed Appendix M1 
to part 226. For example, assume the minimum payment repayment estimate 
calculated using the guidance in proposed Appendix M1 to part 226 is 32 
months (2 years, 8 months), and the minimum payment repayment estimate 
calculated by the issuer is 38 months (3 years, 2 months). Under the 
proposed rounding rule set forth in proposed Sec.  226.7(b)(12)(i)(B), 
both of these estimates would be rounded and disclosed to the consumer 
as 3 years. Thus, if the issuer disclosed 3 years to the consumer, the 
issuer would be in compliance with the guidance in proposed Appendix M1 
to part 226 even through the minimum payment repayment estimate 
calculated by the issuer is outside the 2 months' tolerance amount.
    The Board recognizes that the minimum payment repayment estimates, 
the minimum payment total cost estimates, the estimated monthly 
payments for repayment in 36 months, and the total cost estimates for 
repayment in 36 months, as calculated in proposed Appendix M1 to part 
226, are estimates. The Board would expect that issuers would not be 
liable under Federal or State unfair or deceptive practices laws for 
providing inaccurate or misleading information, when issuers provide to 
consumers these disclosures calculated according to guidance provided 
in proposed Appendix M1 to part 226, as required by TILA.
    Calculating the minimum payment total cost estimate. Under proposed 
Appendix M1 to part 226, when calculating the minimum payment total 
cost estimate, a credit card issuer would be required to total the 
dollar amount of the interest and principal that the consumer would pay 
if he or she made minimum payments for the length of time calculated as 
the minimum payment repayment estimate using the guidance in proposed 
Appendix M1 to part 226. Under the proposal, the minimum payment total 
cost estimate would be deemed to be accurate if it is based on a 
minimum payment repayment estimate that is within the tolerance 
guidance set forth in proposed Appendix M1 to part 226, as discussed 
above. For example, assume the minimum payment repayment estimate 
calculated using the guidance in proposed Appendix M1 to part 226 is 28 
months (2 years, 4 months), and the minimum payment repayment estimate 
calculated by the issuer is 30 months (2 years, 6 months). The minimum 
payment total cost estimate will be deemed accurate even if it is based 
on the 30 month estimate for length of repayment, because the issuer's 
minimum payment repayment estimate is within the 2 months' tolerance, 
prior to rounding. In addition, assume the minimum payment repayment 
estimate calculated using the guidance in proposed Appendix M1 to part 
226 is 32 months (2 years, 8 months), and the minimum payment repayment 
estimate calculated by the issuer is 38 months (3 years, 2 months). 
Under the proposed rounding rule set forth in proposed Sec.  
226.7(b)(12)(i)(B), both of these estimates would be rounded and 
disclosed to the consumer as 3 years. If the issuer based the minimum 
payment total cost estimate on 38 months (or any other minimum payment 
repayment estimate that would be rounded to 3 years), the minimum 
payment total cost estimate would be deemed to be accurate.
    Calculating the estimated monthly payment for repayment in 36 
months. Under proposed Appendix M1 to part 226, when calculating the 
estimated monthly payment for repayment in 36 months, a credit card 
issuer would be required to calculate the estimated monthly payment 
amount that would be required to pay off the outstanding balance shown 
on the statement within 36 months, assuming the consumer paid the same 
amount each month for 36 months.
    In calculating the estimated monthly payment for repayment in 36 
months, the Board proposes to require an issuer to use a weighted APR 
that is based on the APRs that apply to a cardholder's account and the 
portion of the balance to which the rate applies, as shown in proposed 
Appendix M2 to part 226. The Board believes that requiring use of a 
weighted APR to calculate the estimated monthly payment for repayment 
in 36 month when multiple APRs apply to an account will ease compliance 
burden on issuers by significantly simplifying the calculation of the 
estimated monthly payment, without a significant impact on the accuracy 
of the estimated monthly payments for consumers.
    Proposed Appendix M1 to part 226 would provide guidance on how to 
calculate the weighted APR if promotional APRs apply. If any 
promotional terms related to APRs apply to a cardholder's account, 
other than deferred interest or similar plans, in calculating the 
weighted APR, the issuer must calculate a weighted average of the 
promotional rate and the rate that will apply after the promotional 
rate expires based on the percentage of 36 months each rate will apply, 
as shown in proposed Appendix M2 to part 226.
    Under proposed Appendix M1 to part 226, for deferred interest or 
similar plans, if minimum payments under the plan will repay the 
balances or transactions in full prior to the expiration of the 
specified period of time, a card issuer must assume that the consumer 
will not be obligated to pay the accrued interest. This means, in 
calculating the weighted APR, the card issuer must apply a zero percent 
APR to the balance subject to the deferred interest or similar plan. 
If, however, minimum payments under the deferred interest or similar 
plan may not repay the balances or transactions in full prior to the 
expiration of the specified period of time, a credit card issuer in 
calculating the weighted APR must assume that a consumer will not repay 
the balances or transactions in full prior to the expiration of the 
specified period and thus the consumer will be obligated to pay the 
accrued interest. This means, in calculating the weighted APR, the card 
issuer must apply the APR at which interest is accruing to the balance 
subject to the deferred interest or similar plan. To simplify the 
calculation of the repayment estimates, this proposed approach focuses 
on whether minimum payments will repay the balances or transactions in 
full prior to the expiration of the specified period of time instead of 
whether the estimated monthly payment for repayment in 36 months will 
repay the balances or transaction prior to the expiration of the 
specified period. The Board believes that if minimum payments under the 
deferred interest or similar plan will not repay the balances or 
transactions in full prior to the expiration of the specified period of 
time, it is not likely that the estimated monthly payment for repayment 
in 36 months will repay the balances or transactions in full prior to 
the expiration of the specified period, given that (1) under proposed 
Sec.  226.53, card issuers generally may not allocate payments in 
excess of the minimum payment to deferred interest or similar balances 
before other balances on which interest is being charged except in the 
last two months before a deferred interest or similar period is set to 
expire,

[[Page 54197]]

and (2) deferred interest or similar periods typically are shorter than 
3 years.
    The Board requests comment on whether the Board should adopt 
specific tolerances for calculation and disclosure of the estimated 
monthly payment for repayment in 36 months, and if so, what those 
tolerances should be.
    Calculating the total cost estimate for repayment in 36 months. 
Under proposed Appendix M1 to part 226, when calculating the total cost 
estimate for repayment in 36 months, a credit card issuer would be 
required to total the dollar amount of the interest and principal that 
the consumer would pay if he or she made the estimated monthly payment 
for repayment in 36 months calculated under proposed Appendix M1 to 
part 226 each month for 36 months. The Board requests comment on 
whether the Board should adopt specific tolerances for calculation and 
disclosure of the total cost estimate for repayment in 36 months, and 
if so, what those tolerances should be.
    Calculating savings estimate for repayment in 36 months. Under 
proposed Appendix M1 to part 226, when calculating the savings estimate 
for repayment in 36 months, a credit card issuer would be required to 
subtract the total cost estimate for repayment in 36 months calculated 
under paragraph (e) of Appendix M1 (rounded to the nearest whole dollar 
as set forth in proposed Sec.  226.7(b)(12)(i)(F)(3)) from the minimum 
payment total cost estimate calculated under paragraph (c) of Appendix 
M1 (rounded to the nearest whole dollar as set forth in proposed Sec.  
226.7(b)(12)(i)(C)). The Board requests comment on whether the Board 
should adopt specific tolerances for calculation and disclosure of the 
savings estimate for repayment in 36 months, and if so, what those 
tolerances should be.

Appendix M2--Sample Calculations of Repayment Disclosures

    In proposed Appendix M2, the Board proposes to provide sample 
calculations for the minimum payment repayment estimate, the total cost 
repayment estimate, the estimated monthly payment for repayment in 36 
months, the total cost estimate for repayment in 36 months, and the 
savings estimate for repayment in 36 months discussed in proposed 
Appendix M1 to part 226.

Appendix N--Specifications for Internet Posting of Credit Card 
Agreements

    Proposed Appendix N would provide additional details regarding the 
content of agreements submitted to the Board under proposed Sec.  
226.58(d) and posting of agreements offered to the public on the card 
issuer's Web site and availability of agreements for all open accounts 
under Sec.  226.58(f).
Agreements Submitted to the Board Under Sec.  226.58(d)
    Under proposed Appendix N, each agreement submitted to the Board 
must contain the provisions of the agreement and the pricing 
information in effect as of the last business day of the preceding 
calendar quarter.
    Proposed Appendix N also would specify that information that is not 
uniform for all cardholders under an agreement, but that instead may 
vary from one cardholder to another depending upon a cardholder's 
creditworthiness, State of residence, or other factors, such as the 
pricing information, must be set forth in an addendum to the agreement. 
The addendum would be required to provide the information either by 
setting forth all the possible variations (such as purchase APRs of 6.9 
percent, 8.9 percent, 10.9 percent, or 12.9 percent), or by providing a 
range (such as purchase APR ranging from 6.9 percent to 12.9 percent).
    Proposed Appendix N also would clarify that an issuer would not be 
required to submit with an agreement any disclosures required by State 
or Federal law such as affiliate marketing notices, privacy policies, 
or disclosures under the E-Sign Act, except to the extent that those 
disclosures are included in the provisions of the agreement or the 
pricing information. Similarly, issuers would not be required to submit 
solicitation materials or periodic statements.
    As described in proposed Appendix N, agreements submitted to the 
Board would not contain any personally identifiable information (such 
as name, address, telephone number, or account number) relating to any 
cardholder.
    Finally, proposed Appendix N would clarify that issuers may not 
provide provisions of the agreement or pricing information in the form 
of change-in-terms notices or riders (other than the single addendum 
described above, if applicable). Changes in provisions or pricing 
information must be integrated into the body of the agreement (or into 
the single addendum described above, if applicable). For example, it 
would be impermissible for an issuer to submit to the Board an 
agreement in the form of a terms and conditions document dated January 
1, 2005, four subsequent change in terms notices, and 2 addenda showing 
variations in pricing information. Instead, the issuer must submit a 
document that integrates the changes made by each of the change in 
terms notices into the body of the original terms and conditions 
document and a single addendum displaying variations in pricing 
information as described above.
    The Board believes that permitting issuers to submit agreements 
that include change-in-terms notices or riders containing amendments 
and revisions would be confusing for consumers and would greatly lessen 
the usefulness of agreements posted on the Board's Web site. Consumers 
would be required to sift through change-in-terms notices and riders in 
an attempt to assemble a coherent picture of the terms currently 
offered. The Board believes that issuers are better placed than 
consumers to assemble this information. While the Board understands 
that this may somewhat increase the burden on issuers, the Board 
believes that the corresponding benefit of increased transparency for 
consumers outweighs this burden.
Posting of Agreements Offered to the Public on Card Issuer's Web Site 
Under Sec.  226.58(f)(1)
    Proposed Appendix N would clarify that, with respect to posting on 
the issuer's Web site the agreements the issuer is required to submit 
to the Board under proposed Sec.  226.58(f)(1), the agreements need not 
conform to the electronic format required for submission to the Board 
under proposed Sec.  226.58(d). For example, assume the Board requires 
that agreements submitted to the Board under proposed Sec.  226.58(d) 
be submitted in plain text format. When posting the agreements on its 
own Web site under Sec.  226.58(f)(1), an issuer may post the 
agreements in plain text format, in PDF format, in HTML format or in 
some other electronic format, provided the format is readily usable by 
the general public.
    Proposed Appendix N specifies that, under proposed Sec.  
226.58(f)(1), the content of the agreements posted on the issuer's Web 
site must be the same as the content of the agreements submitted to the 
Board, as described in the first part of proposed Appendix N. Under 
proposed Appendix N, an issuer would be required to update the 
agreements posted on its Web site under Sec.  226.58(f)(1) at least as 
frequently as the quarterly schedule required for submission of 
agreements to the Board under Sec.  226.58(d). If the issuer chooses to 
update the agreements on its Web site more frequently, the agreements 
posted on the issuer's Web site would be permitted to contain the 
provisions of the agreement and the pricing information in effect as of 
a date other

[[Page 54198]]

than the last business day of the preceding calendar quarter.
    Proposed Appendix N also would specify that the agreements must be 
posted on the issuer's Web site in a location that is prominent and 
easily accessible by the public and must be presented in a clear and 
legible typeface.
Availability of Agreements for All Open Accounts Under Sec.  
226.58(f)(2)
    With respect to cardholder agreements posted on the issuer's Web 
site under proposed Sec.  226.58(f)(2), proposed Appendix N would 
specify that such agreements may be posted in any electronic format 
that is readily usable by the general public and must be placed in a 
location that is prominent and easily accessible to the cardholder.
    With respect to any agreement provided under Sec.  226.58(f)(2), 
whether posted on the card issuer's Web site under Sec.  
226.58(f)(2)(i) or made available upon the cardholder's request under 
Sec.  226.58(f)(2)(ii), proposed Appendix N would provide that the 
agreement generally must conform to the content requirements for 
agreements submitted to the Board. However, the agreement would be 
required to set forth the specific provisions and pricing information 
applicable to the particular cardholder. The agreement also would be 
permitted to contain personally identifiable information relating to 
the cardholder, such as name address, telephone number, or account 
number, provided that the issuer takes appropriate measures to make the 
agreement accessible only to the cardholder or other authorized person. 
Issuers would be permitted to provide pricing information in the text 
of the agreement or in a single attached addendum. All agreements would 
be required to be presented in a clear and legible typeface.
    Agreements provided under Sec.  226.58(f)(2) would be required 
under proposed Appendix N to include provisions and pricing information 
that is complete and accurate as of a date no more than 60 days prior 
to the date on which the agreement is posted on the card issuer's Web 
site under Sec.  226.58(f)(2)(i) or the date the cardholder's request 
is received under Sec.  226.58(f)(2)(ii). For example, an issuer posts 
cardholder agreements on its Web site under Sec.  226.58(f)(2)(i). The 
agreement posted on the Web site for a particular cardholder on May 1 
must contain the provisions and pricing information applicable to that 
cardholder as of March 2 or later. The Board believes that 60 days 
gives issuers a reasonable amount of time to update provisions and 
pricing information, while providing cardholders with card agreements 
that are current and accurate. However, the Board solicits comments on 
whether this period should be shorter or longer.
    Finally, proposed Appendix N would clarify that issuers may not 
provide provisions of the agreement or pricing information in the form 
of change-in-terms notices or riders (other than the single addendum 
described above, if applicable). Changes in provisions or pricing 
information must be integrated into the text of the agreement (or into 
the single addendum described above, if applicable). For example, it 
would be not be permissible for an issuer to send to a cardholder under 
Sec.  226.58(f)(2)(ii) an agreement consisting of a terms and 
conditions document dated January 1, 2005, and four subsequent change-
in-terms notices. Instead, the issuer would be required to send to the 
cardholder a single document that integrates the changes made by each 
of the change-in-terms notices into the body of the terms and 
conditions document.
    As described above, the Board believes that requiring consumers to 
sift through change in-terms notices and riders in an attempt to 
assemble the agreement to which they are currently subject would be 
burdensome for consumers. The Board believes that issuers are better 
placed than consumers to assemble this information. While the Board 
understands that this may somewhat increase the burden on issuers, the 
Board believes that the corresponding benefit of increased transparency 
for consumers would outweigh this burden.

VI. Regulatory Flexibility Analysis

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) 
requires an agency to perform an initial and final regulatory 
flexibility analysis on the impact a rule is expected to have on small 
entities.
    Prior to proposing this rule, the Board conducted initial and final 
regulatory flexibility analyses and ultimately concluded that the rules 
in the Board's January 2009 Regulation Z Rule and July 2009 Regulation 
Z Interim Final Rule would have a significant economic impact on a 
substantial number of small entities. See 72 FR 33033-33034 (June 14, 
2007); 74 FR 5390-5392; 74 FR 36092-36093. As discussed in I. 
Background and Implementation of the Credit Card Act and V. Section-by-
Section Analysis, several of the provisions of the Credit Card Act are 
similar to provisions in the Board's January 2009 Regulation Z Rule and 
July 2009 Regulation Z Interim Final Rule. To the extent that the 
provisions in the proposed rule are substantially similar to provisions 
in those rules, the Board continues to rely on the regulatory 
flexibility analyses conducted for the Board's January 2009 Regulation 
Z Rule and July 2009 Regulation Z Interim Final Rule. The Credit Card 
Act, however, also addresses practices or mandates disclosures that 
were not addressed in the Board's January 2009 Regulation Z Rules and 
July 2009 Regulation Z Interim Final Rule. The Board anticipates that 
these proposed provisions would impose additional requirements and 
burden on small entities. Therefore, based on its prior analyses and 
for the reasons stated below, the Board believes that this proposed 
rule would have a significant economic impact on a substantial number 
of small entities. Accordingly, the Board has prepared the following 
initial regulatory flexibility analysis pursuant to section 604 of the 
RFA. A final regulatory flexibility analysis will be conducted after 
consideration of comments received during the public comment period.
    1. Statement of the need for, and objectives of, the proposed rule. 
The proposed rule implements a number of new substantive and disclosure 
provisions required by the Credit Card Act, which establishes fair and 
transparent practices relating to the extension of open-end consumer 
credit plans. The supplementary information above describes in detail 
the reasons, objectives, and legal basis for each component of the 
proposed rule.
    2. Small entities affected by the proposed rule. All creditors that 
offer open-end credit plans are subject to the proposed rule, although 
several provisions apply only to credit card accounts under an open-end 
(not home-secured) plan. In addition, institutions of higher education 
are subject to proposed Sec.  226.57(b), regarding public disclosure of 
agreements for purposes of marketing a credit card. The Board is 
relying on its analysis in the January 2009 Regulation Z Rule, in which 
the Board provided data on the number of entities which may be affected 
because they offer open-end credit plans. The Board acknowledges, 
however, that the total number of small entities likely to be affected 
by the proposed rule is unknown, because the open-end credit provisions 
of the Credit Card Act and Regulation Z have broad applicability to 
individuals and businesses that extend even small amounts of consumer 
credit. In addition, the total number of institutions of higher 
education likely to be affected by the proposed rule is unknown because 
the number of

[[Page 54199]]

institutions of higher education that are small entities and have a 
credit card marketing contract or agreement with a card issuer or 
creditor cannot be determined. (For a detailed description of the 
Board's analysis of small entities subject to the January 2009 
Regulation Z Rule, see 74 FR 5391.) The Board invites comment on the 
effect of the proposed rule on small entities.
    3. Recordkeeping, reporting, and compliance requirements. The 
proposed rule does not impose any new recordkeeping requirements. The 
proposed rule would, however, impose new reporting and compliance 
requirements. The reporting and compliance requirements of this 
proposed rule are described above in V. Section-by-Section Analysis. 
The Board notes that the precise costs to small entities to conform 
their open-end credit disclosures to the proposed rule and the costs of 
updating their systems to comply with the rule are difficult to 
predict. These costs will depend on a number of factors that are 
unknown to the Board, including, among other things, the specifications 
of the current systems used by such entities to prepare and provide 
disclosures and administer open-end accounts, the complexity of the 
terms of the open-end credit products that they offer, and the range of 
such product offerings. The Board seeks information and comment on any 
costs, compliance requirements, or changes in operating procedures 
arising from the application of the proposed rule to small entities.

Proposals Regarding Consumer Credit Card Accounts

    This subsection summarizes several of the proposed amendments to 
Regulation Z and their likely impact on small entities that are card 
issuers. More information regarding these and other proposed changes 
can be found in V. Section-by-Section Analysis.
    Proposed Sec.  226.7(b)(11) would generally require the payment due 
date for credit card accounts under an open-end (not home-secured) 
consumer credit plan be the same day of the month for each billing 
cycle. Small entities that are card issuers may be required to update 
their systems to comply with this provision.
    Proposed Sec.  226.7(b)(12) would generally require card issuers 
that are small entities to include on each periodic statement certain 
disclosures regarding repayment, such as a minimum payment warning 
statement, a minimum payment repayment estimate, and the monthly 
payment based on repayment in 36 months. Compliance with this provision 
would require card issuers that are small entities to calculate certain 
minimum payment estimates for each account. The Board, however, seeks 
to reduce the burden on small entities by proposing model forms which 
can be used to ease compliance with the proposed rule.
    Proposed Sec.  226.9(g)(3) would require card issuers that are 
small entities to provide notice regarding an increase in rate based on 
a consumer's failure to make a minimum periodic payment within 60 days 
from the due date and disclose that the increase will cease to apply if 
the small entity is a card issuer and receives six consecutive required 
minimum period payments on or before the payment due date. The Board 
anticipates that small entities subject to Sec.  226.9(g), with little 
additional burden, will incorporate the proposed disclosure requirement 
with the disclosure already required under Sec.  226.9(g).
    Proposed Sec.  226.10(e) would limit fees related to certain 
methods of payment for credit card accounts under an open-end (not 
home-secured) consumer credit plan, with the exception of payments 
involving expedited service by a customer service representative. 
Proposed Sec.  226.10(e) may reduce revenue that some small entities 
derive from fees associated with certain payment methods.
    Proposed Sec.  226.52 would generally limit the imposition of fees 
by card issuers during the first year after account opening. This 
provision may reduce revenue that some entities derive from fees.
    Proposed Sec.  226.54 would prohibit a card issuer from imposing 
certain finance charges as a result of the loss of a grace period on a 
credit card account, except in certain circumstances. This provision 
may reduce revenue that some small entities derive from finance 
charges.
    Proposed Sec.  226.55(a) would generally prohibit small entities 
that are card issuers from increasing an annual percentage rate or any 
fee or charge required to be disclosed under Sec.  226.6(b)(2)(ii), 
(b)(2)(iii), or (b)(2)(xii) on a credit card account unless 
specifically permitted by one of the exceptions in Sec.  226.55(b). 
This provision may reduce interest revenue and other revenue that 
certain small entities derive from fees and charges.
    Proposed Sec.  226.55(b)(3) would require small entities that are 
card issuers to disclose, prior to the commencement of a specified 
period of time, an increased annual percentage rate that would apply 
after the period as a condition for an exception to Sec.  226.55(a). 
However, Sec.  226.9(c)(2)(v)(B) as adopted in the July 2009 Regulation 
Z Interim Final Rule already requires card issuers to disclose this 
information so the Board does not anticipate any significant additional 
burden on small entities.
    Proposed Sec.  226.55(b)(5) would require small entities that are 
card issuers to disclose, prior to commencement of the arrangement, the 
terms of a workout and temporary hardship arrangement as a condition 
for an exception to Sec.  226.55(a). However, Sec.  226.9(c)(2)(v)(D) 
and (g)(4)(i) as adopted in the July 2009 Regulation Z Interim Final 
Rule already require card issuers to disclose this information so the 
Board does not anticipate any significant additional burden on small 
entities.
    Proposed Sec.  226.56 would prohibit small entities that are card 
issuers from imposing fees or charges for an over-the-limit transaction 
unless the card issuer provides the consumer with notice and obtains 
the consumer's affirmative consent, or opt-in. Compliance with this 
provision may impose additional costs on small entities in order to 
provide notice and obtain consent, if the small entity elects to impose 
fees or charges for over-the-limit transactions. Proposed Sec.  226.56 
may reduce revenue that certain small entities derive from fees and 
charges related to over-the-limit transaction. In addition, proposed 
Sec.  226.56 may require some small entities to alter their systems in 
order to comply with the provision. The cost of such change will depend 
on the size of the institution and the composition of its portfolio.
    Proposed Sec.  226.58 would require small entities that are card 
issuers to post agreements for open-end consumer credit card plans on 
the card issuer's Web site and to submit those agreements to the Board 
for posting in a publicly-available on-line repository established and 
maintained by the Board. The cost of compliance will depend on the size 
of the institution and the composition of its portfolio. Proposed Sec.  
226.58(e), however, provides a de minimis exception, which would reduce 
the economic impact and compliance burden on small entities. Under 
proposed Sec.  226.58(e), a card issuer would not be required to submit 
an agreement to the Board if the card issuer has fewer than 10,000 open 
accounts under open-end consumer credit card plans subject to Sec.  
226.5a as of the last business day of the calendar quarter.
    Accordingly, the Board believes that, in the aggregate, the 
provisions of its proposed rule would have a significant economic 
impact on a substantial number of small entities.
    4. Other Federal rules. Other than the January 2009 FTC Act Rule 
and similar

[[Page 54200]]

rules adopted by other Agencies, the Board has not identified any 
Federal rules that duplicate, overlap, or conflict with the proposed 
revisions to TILA. As discussed in the supplementary information to 
this proposed rule, the Board intends to withdraw its January 2009 FTC 
Act Rule when finalizing this proposal.
    5. Significant alternatives to the proposed revisions. The 
provisions of the proposed rule would implement the statutory 
requirements of the Credit Card Act that go into effect on February 22, 
2010. The Board has sought to avoid imposing additional burden, while 
effectuating the statute in a manner that is beneficial to consumers. 
The Board welcomes comment on any significant alternatives, consistent 
with the Credit Card Act, which would minimize impact of the proposed 
rule on small entities.

VII. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act (PRA) of 1995 (44 
U.S.C. 3506; 5 CFR Part 1320 Appendix A.1), the Board reviewed the 
proposed rule under the authority delegated to the Board by the Office 
of Management and Budget (OMB). The collection of information that is 
required by this proposed rule is found in 12 CFR part 226. The Federal 
Reserve may not conduct or sponsor, and an organization is not required 
to respond to, this information collection unless the information 
collection displays a currently valid OMB control number. The OMB 
control number is 7100-0199.\50\
---------------------------------------------------------------------------

    \50\ The information collection will be re-titled--Reporting, 
Recordkeeping and Disclosure Requirements associated with Regulation 
Z (Truth in Lending) and Regulation AA (Unfair or Deceptive Acts or 
Practices).
---------------------------------------------------------------------------

    This information collection is required to provide benefits for 
consumers and is mandatory (15 U.S.C. 1601 et seq.). The respondents/
recordkeepers are creditors and other entities subject to Regulation Z, 
including for-profit financial institutions, small businesses, and 
institutions of higher education. TILA and Regulation Z are intended to 
ensure effective disclosure of the costs and terms of credit to 
consumers. For open-end credit, creditors are required to, among other 
things, disclose information about the initial costs and terms and to 
provide periodic statements of account activity, notices of changes in 
terms, and statements of rights concerning billing error procedures. 
Regulation Z requires specific types of disclosures for credit and 
charge card accounts and home-equity plans. For closed-end loans, such 
as mortgage and installment loans, cost disclosures are required to be 
provided prior to consummation. Special disclosures are required in 
connection with certain products, such as reverse mortgages, certain 
variable-rate loans, and certain mortgages with rates and fees above 
specified thresholds. TILA and Regulation Z also contain rules 
concerning credit advertising. Creditors are required to retain 
evidence of compliance for twenty-four months (Sec.  226.25), but 
Regulation Z does not specify the types of records that must be 
retained.
    Under the PRA, the Federal Reserve accounts for the paperwork 
burden associated with Regulation Z for the State member banks and 
other creditors supervised by the Federal Reserve that engage in 
lending covered by Regulation Z and, therefore, are respondents under 
the PRA. Appendix I of Regulation Z defines the Federal Reserve-
regulated institutions as: State member banks, branches and agencies of 
foreign banks (other than Federal branches, Federal agencies, and 
insured State branches of foreign banks), commercial lending companies 
owned or controlled by foreign banks, and organizations operating under 
section 25 or 25A of the Federal Reserve Act. Other Federal agencies 
account for the paperwork burden on other entities subject to 
Regulation Z. To ease the burden and cost of complying with Regulation 
Z (particularly for small entities), the Federal Reserve provides model 
forms, which are appended to the regulation.
    As discussed in I. Background and Implementation of the Credit Card 
Act and V. Section-by-Section Analysis, several of the provisions of 
the Credit Card Act are similar to provisions in the Board's January 
2009 Regulation Z Rules. To the extent that the provisions in the 
proposed rule are substantially similar to provisions in the January 
2009 Regulation Z Rule, the Board continues to rely on the substance of 
its PRA analysis in the January 2009 Regulation Z Rule. See 74 FR 5392-
5393. The Credit Card Act, however, also addresses practices or 
mandates disclosures that were not addressed in the Board's January 
2009 Regulation Z Rules. The Board anticipates increased burden caused 
by additional disclosure requirements in the proposed rule and 
therefore, revises its prior PRA analysis accordingly.
    Under proposed Sec.  226.7(b)(12), creditors are generally required 
to include on each periodic statement certain disclosures regarding 
repayment, such as a minimum payment warning statement, a minimum 
payment repayment estimate, and the monthly payment based on repayment 
in 36 months. As mentioned in the preamble, in an effort to reduce 
burden the Board is proposing guidance in Appendix M1 on how to 
calculate repayment estimates. Appendix M2 to part 226 provides sample 
calculations of repayment estimates using guidance in Appendix M1. The 
Board estimates that 1,138 respondents would take, on average, 80 hours 
(two business weeks) to update their systems to comply with the 
proposed disclosure requirements in Sec.  226.7(b)(12). This one-time 
revision would increase the burden by 91,040 hours. The Board does not 
anticipate any additional burden on a continuing basis.
    Under proposed Sec.  226.9(g)(3), if a rate is increased based on a 
consumer's failure to make a minimum periodic payment within 60 days 
from the due date, a creditor is required to provide notice containing 
a statement of the reason for the increase and that the increase will 
cease to apply if the creditor receives six consecutive required 
minimum period payments on or before the payment due date. The Board 
anticipates that creditors, with little additional burden, will 
incorporate the proposed disclosure requirement with the disclosure 
already required under Sec.  226.9(g). The Board estimates that 1,138 
respondents would take, on average, 8 hours to update their systems to 
comply with the proposed disclosure requirements in Sec.  226.9(g)(3) 
and estimates the one-time burden to be 9,104 hours.
    Under proposed Sec.  226.55(b)(3), a card issuer must disclose, 
prior to the commencement of a specified period of time, an increased 
annual percentage rate that would apply after the period as a condition 
for an exception to Sec.  226.55(a). However, Sec.  226.9(c)(2)(v)(B) 
as adopted in the July 2009 Regulation Z Interim Final Rule already 
requires card issuers to disclose this information so the Board does 
not anticipate any additional burden.
    Under proposed Sec.  226.55(b)(5), a card issuer must disclose, 
prior to commencement of the arrangement, the terms of a workout and 
temporary hardship arrangement as a condition for an exception to Sec.  
226.55(a). However, Sec.  226.9(c)(2)(v)(D) and (g)(4)(i) as adopted in 
the July 2009 Regulation Z Interim Final Rule already require card 
issuers to disclose this information so the Board does not anticipate 
any additional burden.
    Under proposed Sec.  226.57(b), an institution of higher education 
is required to publicly disclose any contract or other agreement made 
with

[[Page 54201]]

a card issuer or creditor for the purpose of marketing a credit card. 
Since the regulation does not specify a required method for public 
disclosure the Board estimates that 4,276 respondents \51\ would take, 
on average, 8 hours to comply with the proposed disclosure requirements 
and estimates the annual burden to be 34,208 hours.
---------------------------------------------------------------------------

    \51\ The number of institutions of higher learning that granted 
college degrees in 2005. See Upcoming Statistical Abstract of the 
United States: 2008. (available at http://www.census.gov/Press-Release/www/2007/cb07ff-11.pdf).
---------------------------------------------------------------------------

    Under proposed Sec.  226.57(d), creditors that are a party to one 
or more college credit card agreements would be required to register 
with the Board and to submit annual reports to the Board regarding 
those agreements. Creditor registration requirements would comprise 
primarily of contact information. In addition, creditors would be 
required to provide specific information related to the agreements. The 
Board estimates that 2,200 creditors \52\ would take, on average, 160 
hours (one month) to comply with the proposed disclosure requirements 
in Sec.  226.57(d) and estimates the one-time annual burden to be 
352,000 hours. To avoid double counting the burden estimate for 
creditor registration and updates to all agreements is accounted for 
under proposed Sec.  226.58.
---------------------------------------------------------------------------

    \52\ The number of creditors that are a party to one or more 
college credit card agreements is unknown.
---------------------------------------------------------------------------

    Under proposed Sec.  226.58, a creditor is required to post 
agreements for open-end consumer credit card plans on the creditor's 
Web site and to submit those agreements to the Board for posting in a 
publicly-available on-line repository established and maintained by the 
Board. Creditors would be required to register with the Board and 
submit to the Board all agreements for open-end consumer credit card 
plans. The Board estimates that 2,200 creditors \53\ would take, on 
average, 30 minutes to register their contact information and estimates 
the one-time annual burden to be 1,100 hours. In addition, the Board 
estimates that 2,200 creditors would take, on average, 40 hours (one 
business week) to comply with the proposed disclosure requirements in 
Sec.  226.58 and estimates the annual burden to be 88,000 hours. On a 
continuing basis, the Board estimates creditors would take, on average, 
8 hours (quarterly) to update agreements and estimates the annual 
burden to be 70,400 hours.
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    \53\ Creditors with credit card activity. Under proposed Sec.  
226.58, the Board will assume burden for creditors regulated by the: 
Office of the Comptroller of the Currency (OCC), Office of Thrift 
Supervision (OTS), Federal Deposit Insurance Corporation (FDIC), 
National Credit Union Administration (NCUA), and Federal Trade 
Commission.
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    Based on these adjustments to the Board's prior estimates and the 
Board's PRA analysis in the January 2009 Regulation Z Rule, the 
proposed rule would impose a one-time increase in the total annual 
burden under Regulation Z for all respondents regulated by the Federal 
Reserve by 575,452 hours, from 1,008,962 to 1,584,414 hours. The total 
one-time burden increase represents averages for all respondents 
regulated by the Federal Reserve. The Federal Reserve expects that the 
amount of time required to implement each of the proposed changes for a 
given financial institution or entity may vary based on the size and 
complexity of the respondent. In addition, the Federal Reserve 
estimates that, on a continuing basis, the proposed revisions to the 
rules would increase the total annual burden on a continuing basis from 
1,008,962 to 1,079,362 hours. The total annual burden for the 
Regulation Z information collection is estimated to increase from 
1,008,962 to 1,654,814 hours.\54\
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    \54\ The burden estimate for this rulemaking does not include 
the burden addressing changes to implement provisions of Closed-End 
Mortgages (Docket No. R-1366) or the Home-Equity Lines of Credit 
(Docket No. R-1367), as announced in separate proposed rulemakings. 
See 74 FR 43232 and 74 FR 43428.
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    The other Federal financial agencies: Office of the Comptroller of 
the Currency (OCC), Office of Thrift Supervision (OTS), the Federal 
Deposit Insurance Corporation (FDIC), and the National Credit Union 
Administration (NCUA) are responsible for estimating and reporting to 
OMB the total paperwork burden for the domestically chartered 
commercial banks, thrifts, and Federal credit unions and U.S. branches 
and agencies of foreign banks for which they have primary 
administrative enforcement jurisdiction under TILA Section 108(a), 15. 
U.S.C. 1607(a). These agencies are permitted, but are not required, to 
use the Board's burden estimation methodology. Using the Board's 
method, the total current estimated annual burden for the approximately 
17,200 domestically chartered commercial banks, thrifts, and Federal 
credit unions and U.S. branches and agencies of foreign banks 
supervised by the Federal Reserve, OCC, OTS, FDIC, and NCUA under TILA 
would be approximately 13,568,725 hours. The proposed rule would impose 
a one-time increase in the estimated annual burden for such 
institutions by 4,274,200 hours to 17,842,925 hours. On a continuing 
basis the proposed rule would impose an increase in the estimated 
annual burden by 137,600 to 13,706,325 hours. The above estimates 
represent an average across all respondents; the Board expects 
variations between institutions based on their size, complexity, and 
practices.
    Comments are invited on: (1) Whether the proposed collection of 
information is necessary for the proper performance of the Board's 
functions; including whether the information has practical utility; (2) 
the accuracy of the Board's estimate of the burden of the proposed 
information collection, including the cost of compliance; (3) ways to 
enhance the quality, utility, and clarity of the information to be 
collected; and (4) ways to minimize the burden of information 
collection on respondents, including through the use of automated 
collection techniques or other forms of information technology. 
Comments on the collection of information should be sent to Michelle 
Shore, Federal Reserve Board Clearance Officer, Division of Research 
and Statistics, Mail Stop 95-A, Board of Governors of the Federal 
Reserve System, Washington, DC 20551, with copies of such comments sent 
to the Office of Management and Budget, Paperwork Reduction Project 
(7100-0199), Washington, DC 20503.

List of Subjects in 12 CFR Part 226

    Advertising, Consumer protection, Federal Reserve System, Reporting 
and recordkeeping requirements, Truth in Lending.

Text of Interim Final Revisions

    For the reasons set forth in the preamble, the Board proposes to 
amend Regulation Z, 12 CFR part 226, as set forth below:

PART 226--TRUTH IN LENDING (REGULATION Z)

    1. The authority citation for part 226 continues to read as 
follows:

    Authority: 12 U.S.C. 3806; 15 U.S.C. 1604, 1637(c)(5), and 
1639(l); Public Law 111-24 Sec.  2, 123 Stat. 1734.

Subpart A--General

    2. Section 226.1 is revised to read as follows:


Sec.  226.1  Authority, purpose, coverage, organization, enforcement, 
and liability.

    (a) Authority. This regulation, known as Regulation Z, is issued by 
the Board of Governors of the Federal Reserve System to implement the 
Federal Truth in Lending Act, which is contained in title I of the 
Consumer Credit Protection Act, as amended (15 U.S.C. 1601 et seq.). 
This regulation also implements title XII, section 1204 of the 
Competitive

[[Page 54202]]

Equality Banking Act of 1987 (Pub. L. 100-86, 101 Stat. 552). 
Information-collection requirements contained in this regulation have 
been approved by the Office of Management and Budget under the 
provisions of 44 U.S.C. 3501 et seq. and have been assigned OMB No. 
7100-0199.
    (b) Purpose. The purpose of this regulation is to promote the 
informed use of consumer credit by requiring disclosures about its 
terms and cost. The regulation also gives consumers the right to cancel 
certain credit transactions that involve a lien on a consumer's 
principal dwelling, regulates certain credit card practices, and 
provides a means for fair and timely resolution of credit billing 
disputes. The regulation does not govern charges for consumer credit. 
The regulation requires a maximum interest rate to be stated in 
variable-rate contracts secured by the consumer's dwelling. It also 
imposes limitations on home-equity plans that are subject to the 
requirements of Sec.  226.5b and mortgages that are subject to the 
requirements of Sec.  226.32. The regulation prohibits certain acts or 
practices in connection with credit secured by a consumer's principal 
dwelling. The regulation also regulates certain practices of creditors 
who extend private education loans as defined in Sec.  226.46(b)(5).
    (c) Coverage. (1) In general, this regulation applies to each 
individual or business that offers or extends credit when four 
conditions are met:
    (i) The credit is offered or extended to consumers;
    (ii) The offering or extension of credit is done regularly; \1\
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    \1\ [Reserved]
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    (iii) The credit is subject to a finance charge or is payable by a 
written agreement in more than four installments; and
    (iv) The credit is primarily for personal, family, or household 
purposes.
    (2) If a credit card is involved, however, certain provisions apply 
even if the credit is not subject to a finance charge, or is not 
payable by a written agreement in more than four installments, or if 
the credit card is to be used for business purposes.
    (3) In addition, certain requirements of Sec.  226.5b apply to 
persons who are not creditors but who provide applications for home-
equity plans to consumers.
    (4) Furthermore, certain requirements of Sec.  226.57 apply to 
institutions of higher education.
    (d) Organization. The regulation is divided into subparts and 
appendices as follows:
    (1) Subpart A contains general information. It sets forth:
    (i) The authority, purpose, coverage, and organization of the 
regulation;
    (ii) The definitions of basic terms;
    (iii) The transactions that are exempt from coverage; and (iv) the 
method of determining the finance charge.
    (2) Subpart B contains the rules for open-end credit. It requires 
that account-opening disclosures and periodic statements be provided, 
as well as additional disclosures for credit and charge card 
applications and solicitations and for home-equity plans subject to the 
requirements of Sec.  226.5a and Sec.  226.5b, respectively. It also 
describes special rules that apply to credit card transactions, 
treatment of payments and credit balances, procedures for resolving 
credit billing errors, annual percentage rate calculations, rescission 
requirements, and advertising.
    (3) Subpart C relates to closed-end credit. It contains rules on 
disclosures, treatment of credit balances, annual percentages rate 
calculations, rescission requirements, and advertising.
    (4) Subpart D contains rules on oral disclosures, disclosures in 
languages other than English, record retention, effect on State laws, 
State exemptions, and rate limitations.
    (5) Subpart E contains special rules for certain mortgage 
transactions. Section 226.32 requires certain disclosures and provides 
limitations for loans that have rates and fees above specified amounts. 
Section 226.33 requires disclosures, including the total annual loan 
cost rate, for reverse mortgage transactions. Section 226.34 prohibits 
specific acts and practices in connection with mortgage transactions 
that are subject to Sec.  226.32. Section 226.35 prohibits specific 
acts and practices in connection with higher-priced mortgage loans, as 
defined in Sec.  226.35(a). Section 226.36 prohibits specific acts and 
practices in connection with credit secured by a consumer's principal 
dwelling.
    (6) Subpart F relates to private education loans. It contains rules 
on disclosures, limitations on changes in terms after approval, the 
right to cancel the loan, and limitations on co-branding in the 
marketing of private education loans.
    (7) Subpart G relates to credit card accounts under an open-end 
(not home-secured) consumer credit plan (except for Sec.  226.57(c), 
which applies to all open-end credit plans). Section 226.51 contains 
rules on evaluation of a consumer's ability to make the required 
payments under the terms of an account. Section 226.52 limits the fees 
that can be charged to an open-end (not home-secured) consumer credit 
plan during the first year after account opening. Section 226.53 
contains rules on allocation of payments in excess of the minimum 
payment. Section 226.54 sets forth certain limitations on the 
imposition of finance charges as the result of a loss of a grace 
period. Section 226.55 contains limitations on increases in annual 
percentage rates, fees, and charges for credit card accounts. Section 
226.56 prohibits the assessment of fees or charges for over-the-limit 
transactions unless the consumer affirmatively consents to the 
creditor's paying of over-the-limit transactions. Section 226.57 sets 
forth rules for marketing of open-end credit to college students. 
Section 226.58 sets for requirements for the Internet posting of credit 
card accounts under an open-end (not home-secured) consumer credit 
plan.
    (8) Several appendices contain information such as the procedures 
for determinations about State laws, State exemptions and issuance of 
staff interpretations, special rules for certain kinds of credit plans, 
a list of enforcement agencies, and the rules for computing annual 
percentage rates in closed-end credit transactions and total-annual-
loan-cost rates for reverse mortgage transactions.
    (e) Enforcement and liability. Section 108 of the act contains the 
administrative enforcement provisions. Sections 112, 113, 130, 131, and 
134 contain provisions relating to liability for failure to comply with 
the requirements of the act and the regulation. Section 1204(c) of 
title XII of the Competitive Equality Banking Act of 1987, Public Law 
100-86, 101 Stat. 552, incorporates by reference administrative 
enforcement and civil liability provisions of sections 108 and 130 of 
the act.
    3. Section 226.2 is revised to read as follows:


Sec.  226.2  Definitions and rules of construction.

    (a) Definitions. For purposes of this regulation, the following 
definitions apply:
    (1) Act means the Truth in Lending Act (15 U.S.C. 1601 et seq.).
    (2) Advertisement means a commercial message in any medium that 
promotes, directly or indirectly, a credit transaction.
    (3) [Reserved] \2\
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    \2\ [Reserved]
---------------------------------------------------------------------------

    (4) Billing cycle or cycle means the interval between the days or 
dates of regular periodic statements. These intervals shall be equal 
and no longer

[[Page 54203]]

than a quarter of a year. An interval will be considered equal if the 
number of days in the cycle does not vary more than four days from the 
regular day or date of the periodic statement.
    (5) Board means the Board of Governors of the Federal Reserve 
System.
    (6) Business day means a day on which the creditor's offices are 
open to the public for carrying on substantially all of its business 
functions. However, for purposes of rescission under Sec. Sec.  226.15 
and 226.23, and for purposes of Sec. Sec.  226.19(a)(1)(ii), 
226.19(a)(2), 226.31, and 226.46(d)(4), the term means all calendar 
days except Sundays and the legal public holidays specified in 5 U.S.C. 
6103(a), such as New Year's Day, the Birthday of Martin Luther King, 
Jr., Washington's Birthday, Memorial Day, Independence Day, Labor Day, 
Columbus Day, Veterans Day, Thanksgiving Day, and Christmas Day.
    (7) Card issuer means a person that issues a credit card or that 
person's agent with respect to the card.
    (8) Cardholder means a natural person to whom a credit card is 
issued for consumer credit purposes, or a natural person who has agreed 
with the card issuer to pay consumer credit obligations arising from 
the issuance of credit card to another natural person. For purposes of 
Sec.  226.12(a) and (b), the term includes any person to whom a credit 
card is issued for any purpose, including business, commercial or 
agricultural use, or a person who has agreed with the card issuer to 
pay obligations arising from the issuance of such a credit card to 
another person.
    (9) Cash price means the price at which a creditor, in the ordinary 
course of business, offers to sell for cash property or service that is 
the subject of the transaction. At the creditor's option, the term may 
include the price of accessories, services related to the sale, service 
contracts and taxes and fees for license, title, and registration. The 
term does not include any finance charge.
    (10) Closed-end credit means consumer credit other than ``open-end 
credit'' as defined in this section.
    (11) Consumer means a cardholder or natural person to whom consumer 
credit is offered or extended. However, for purposes of rescission 
under Sec. Sec.  226.15 and 226.23, the term also includes a natural 
person in whose principal dwelling a security interest is or will be 
retained or acquired, if that person's ownership interest in the 
dwelling is or will be subject to the security interest.
    (12) Consumer credit means credit offered or extended to a consumer 
primarily for personal, family, or household purposes.
    (13) Consummation means the time that a consumer becomes 
contractually obligated on a credit transaction.
    (14) Credit means the right to defer payment of debt or to incur 
debt and defer its payment.
    (15)(i) Credit card means any card, plate, or other single credit 
device that may be used from time to time to obtain credit.
    (ii) Credit card account under an open-end (not home-secured) 
consumer credit plan means any credit account accessed by a credit 
card, except:
    (A) A credit card that accesses a home-equity plan subject to the 
requirements of Sec.  226.5b; or
    (B) An overdraft line of credit accessed by a debit card.
    (iii) Charge card means a credit card on an account for which no 
periodic rate is used to compute a finance charge.
    (16) Credit sale means a sale in which the seller is a creditor. 
The term includes a bailment or lease (unless terminable without 
penalty at any time by the consumer) under which the consumer--
    (i) Agrees to pay as compensation for use a sum substantially 
equivalent to, or in excess of, the total value of the property and 
service involved; and
    (ii) Will become (or has the option to become), for no additional 
consideration or for nominal consideration, the owner of the property 
upon compliance with the agreement.
    (17) Creditor means:
    (i) A person who regularly extends consumer credit \3\ that is 
subject to a finance charge or is payable by written agreement in more 
than four installments (not including a down payment), and to whom the 
obligation is initially payable, either on the face of the note or 
contract, or by agreement when there is no note or contract.
---------------------------------------------------------------------------

    \3\ [Reserved]
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    (ii) For purposes of Sec. Sec.  226.4(c)(8) (Discounts), 226.9(d) 
(Finance charge imposed at time of transaction), and 226.12(e) (Prompt 
notification of returns and crediting of refunds), a person that honors 
a credit card.
    (iii) For purposes of subpart B, any card issuer that extends 
either open-end credit or credit that is not subject to a finance 
charge and is not payable by written agreement in more than four 
installments.
    (iv) For purposes of subpart B (except for the credit and charge 
card disclosures contained in Sec. Sec.  226.5a and 226.9(e) and (f), 
the finance charge disclosures contained in Sec.  226.6(a)(1) and 
(b)(3)(i) and Sec.  226.7(a)(4) through (7) and (b)(4) through (6) and 
the right of rescission set forth in Sec.  226.15) and subpart C, any 
card issuer that extends closed-end credit that is subject to a finance 
charge or is payable by written agreement in more than four 
installments.
    (v) A person regularly extends consumer credit only if it extended 
credit (other than credit subject to the requirements of Sec.  226.32) 
more than 25 times (or more than 5 times for transactions secured by a 
dwelling) in the preceding calendar year. If a person did not meet 
these numerical standards in the preceding calendar year, the numerical 
standards shall be applied to the current calendar year. A person 
regularly extends consumer credit if, in any 12-month period, the 
person originates more than one credit extension that is subject to the 
requirements of Sec.  226.32 or one or more such credit extensions 
through a mortgage broker.
    (18) Downpayment means an amount, including the value of property 
used as a trade-in, paid to a seller to reduce the cash price of goods 
or services purchased in a credit sale transaction. A deferred portion 
of a downpayment may be treated as part of the downpayment if it is 
payable not later than the due date of the second otherwise regularly 
scheduled payment and is not subject to a finance charge.
    (19) Dwelling means a residential structure that contains one to 
four units, whether or not that structure is attached to real property. 
The term includes an individual condominium unit, cooperative unit, 
mobile home, and trailer, if it is used as a residence.
    (20) Open-end credit means consumer credit extended by a creditor 
under a plan in which:
    (i) The creditor reasonably contemplates repeated transactions;
    (ii) The creditor may impose a finance charge from time to time on 
an outstanding unpaid balance; and
    (iii) The amount of credit that may be extended to the consumer 
during the term of the plan (up to any limit set by the creditor) is 
generally made available to the extent that any outstanding balance is 
repaid.
    (21) Periodic rate means a rate of finance charge that is or may be 
imposed by a creditor on a balance for a day, week, month, or other 
subdivision of a year.
    (22) Person means a natural person or an organization, including a 
corporation, partnership, proprietorship, association, cooperative, 
estate, trust, or government unit.
    (23) Prepaid finance charge means any finance charge paid 
separately in

[[Page 54204]]

cash or by check before or at consummation of a transaction, or 
withheld from the proceeds of the credit at any time.
    (24) Residential mortgage transaction means a transaction in which 
a mortgage, deed of trust, purchase money security interest arising 
under an installment sales contract, or equivalent consensual security 
interest is created or retained in the consumer's principal dwelling to 
finance the acquisition or initial construction of that dwelling.
    (25) Security interest means an interest in property that secures 
performance of a consumer credit obligation and that is recognized by 
State or Federal law. It does not include incidental interests such as 
interests in proceeds, accessions, additions, fixtures, insurance 
proceeds (whether or not the creditor is a loss payee or beneficiary), 
premium rebates, or interests in after-acquired property. For purposes 
of disclosures under Sec. Sec.  226.6 and 226.18, the term does not 
include an interest that arises solely by operation of law. However, 
for purposes of the right of rescission under Sec. Sec.  226.15 and 
226.23, the term does include interests that arise solely by operation 
of law.
    (26) State means any State, the District of Columbia, the 
Commonwealth of Puerto Rico, and any territory or possession of the 
United States.
    (b) Rules of construction. For purposes of this regulation, the 
following rules of construction apply:
    (1) Where appropriate, the singular form of a word includes the 
plural form and plural includes singular.
    (2) Where the words obligation and transaction are used in the 
regulation, they refer to a consumer credit obligation or transaction, 
depending upon the context. Where the work credit is used in the 
regulation, it means consumer credit unless the context clearly 
indicates otherwise.
    (3) Unless defined in this regulation, the words used have the 
meanings given to them by State law or contract.
    (4) Footnotes have the same legal effect as the text of the 
regulation.
    (5) Where the word amount is used in this regulation to describe 
disclosure requirements, it refers to a numerical amount.
    4. Section 226.3 is revised to read as follows:


Sec.  226.3  Exempt transactions.

    This regulation does not apply to the following: \4\
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    \4\ [Reserved]
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    (a) Business, commercial, agricultural, or organizational credit.
    (1) An extension of credit primarily for a business, commercial or 
agricultural purpose.
    (2) An extension of credit to other than a natural person, 
including credit to government agencies or instrumentalities.
    (b) Credit over $25,000 not secured by real property or a dwelling. 
An extension of credit in which the amount financed exceeds $25,000 or 
in which there is an express written commitment to extend credit in 
excess of $25,000, unless the extension of credit is:
    (1) Secured by real property, or by personal property used or 
expected to be used as the principal dwelling of the consumer; or
    (2) A private education loan as defined in Sec.  226.46(b)(5).
    (c) Public utility credit. An extension of credit that involves 
public utility services provided through pipe, wire, other connected 
facilities, or radio or similar transmission (including extensions of 
such facilities), if the charges for service, delayed payment, or any 
discounts for prompt payment are filed with or regulated by any 
government unit. The financing of durable goods or home improvements by 
a public utility is not exempt.
    (d) Securities or commodities accounts. Transactions in securities 
or commodities accounts in which credit is extended by a broker-dealer 
registered with the Securities and Exchange Commission or the Commodity 
Futures Trading Commission.
    (e) Home fuel budget plans. An installment agreement for the 
purchase of home fuels in which no finance charge is imposed.
    (f) Student loan programs. Loans made, insured, or guaranteed 
pursuant to a program authorized by title IV of the Higher Education 
Act of 1965 (20 U.S.C. 1070 et seq.).
    (g) Employer-sponsored retirement plans. An extension of credit to 
a participant in an employer-sponsored retirement plan qualified under 
Section 401(a) of the Internal Revenue Code, a tax-sheltered annuity 
under Section 403(b) of the Internal Revenue Code, or an eligible 
governmental deferred compensation plan under Section 457(b) of the 
Internal Revenue Code (26 U.S.C. 401(a); 26 U.S.C. 403(b); 26 U.S.C. 
457(b)), provided that the extension of credit is comprised of fully 
vested funds from such participant's account and is made in compliance 
with the Internal Revenue Code (26 U.S.C. 1 et seq.).
    5. Section 226.4 is revised to read as follows:


Sec.  226.4  Finance charge.

    (a) Definition. The finance charge is the cost of consumer credit 
as a dollar amount. It includes any charge payable directly or 
indirectly by the consumer and imposed directly or indirectly by the 
creditor as an incident to or a condition of the extension of credit. 
It does not include any charge of a type payable in a comparable cash 
transaction.
    (1) Charges by third parties. The finance charge includes fees and 
amounts charged by someone other than the creditor, unless otherwise 
excluded under this section, if the creditor:
    (i) Requires the use of a third party as a condition of or an 
incident to the extension of credit, even if the consumer can choose 
the third party; or
    (ii) Retains a portion of the third-party charge, to the extent of 
the portion retained.
    (2) Special rule; closing agent charges. Fees charged by a third 
party that conducts the loan closing (such as a settlement agent, 
attorney, or escrow or title company) are finance charges only if the 
creditor--
    (i) Requires the particular services for which the consumer is 
charged;
    (ii) Requires the imposition of the charge; or
    (iii) Retains a portion of the third-party charge, to the extent of 
the portion retained.
    (3) Special rule; mortgage broker fees. Fees charged by a mortgage 
broker (including fees paid by the consumer directly to the broker or 
to the creditor for delivery to the broker) are finance charges even if 
the creditor does not require the consumer to use a mortgage broker and 
even if the creditor does not retain any portion of the charge.
    (b) Examples of finance charges. The finance charge includes the 
following types of charges, except for charges specifically excluded by 
paragraphs (c) through (e) of this section:
    (1) Interest, time price differential, and any amount payable under 
an add-on or discount system of additional charges.
    (2) Service, transaction, activity, and carrying charges, including 
any charge imposed on a checking or other transaction account to the 
extent that the charge exceeds the charge for a similar account without 
a credit feature.
    (3) Points, loan fees, assumption fees, finder's fees, and similar 
charges.
    (4) Appraisal, investigation, and credit report fees.
    (5) Premiums or other charges for any guarantee or insurance 
protecting the creditor against the consumer's default or other credit 
loss.

[[Page 54205]]

    (6) Charges imposed on a creditor by another person for purchasing 
or accepting a consumer's obligation, if the consumer is required to 
pay the charges in cash, as an addition to the obligation, or as a 
deduction from the proceeds of the obligation.
    (7) Premiums or other charges for credit life, accident, health, or 
loss-of-income insurance, written in connection with a credit 
transaction.
    (8) Premiums or other charges for insurance against loss of or 
damage to property, or against liability arising out of the ownership 
or use of property, written in connection with a credit transaction.
    (9) Discounts for the purpose of inducing payment by a means other 
than the use of credit.
    (10) Charges or premiums paid for debt cancellation or debt 
suspension coverage written in connection with a credit transaction, 
whether or not the coverage is insurance under applicable law.
    (c) Charges excluded from the finance charge. The following charges 
are not finance charges:
    (1) Application fees charged to all applicants for credit, whether 
or not credit is actually extended.
    (2) Charges for actual unanticipated late payment, for exceeding a 
credit limit, or for delinquency, default, or a similar occurrence.
    (3) Charges imposed by a financial institution for paying items 
that overdraw an account, unless the payment of such items and the 
imposition of the charge were previously agreed upon in writing.
    (4) Fees charged for participation in a credit plan, whether 
assessed on an annual or other periodic basis.
    (5) Seller's points.
    (6) Interest forfeited as a result of an interest reduction 
required by law on a time deposit used as security for an extension of 
credit.
    (7) Real-estate related fees. The following fees in a transaction 
secured by real property or in a residential mortgage transaction, if 
the fees are bona fide and reasonable in amount:
    (i) Fees for title examination, abstract of title, title insurance, 
property survey, and similar purposes.
    (ii) Fees for preparing loan-related documents, such as deeds, 
mortgages, and reconveyance or settlement documents.
    (iii) Notary and credit-report fees.
    (iv) Property appraisal fees or fees for inspections to assess the 
value or condition of the property if the service is performed prior to 
closing, including fees related to pest-infestation or flood-hazard 
determinations.
    (v) Amounts required to be paid into escrow or trustee accounts if 
the amounts would not otherwise be included in the finance charge.
    (8) Discounts offered to induce payment for a purchase by cash, 
check, or other means, as provided in section 167(b) of the Act.
    (d) Insurance and debt cancellation and debt suspension coverage.
    (1) Voluntary credit insurance premiums. Premiums for credit life, 
accident, health, or loss-of-income insurance may be excluded from the 
finance charge if the following conditions are met:
    (i) The insurance coverage is not required by the creditor, and 
this fact is disclosed in writing.
    (ii) The premium for the initial term of insurance coverage is 
disclosed in writing. If the term of insurance is less than the term of 
the transaction, the term of insurance also shall be disclosed. The 
premium may be disclosed on a unit-cost basis only in open-end credit 
transactions, closed-end credit transactions by mail or telephone under 
Sec.  226.17(g), and certain closed-end credit transactions involving 
an insurance plan that limits the total amount of indebtedness subject 
to coverage.
    (iii) The consumer signs or initials an affirmative written request 
for the insurance after receiving the disclosures specified in this 
paragraph, except as provided in paragraph (d)(4) of this section. Any 
consumer in the transaction may sign or initial the request.
    (2) Property insurance premiums. Premiums for insurance against 
loss of or damage to property, or against liability arising out of the 
ownership or use of property, including single interest insurance if 
the insurer waives all right of subrogation against the consumer,\5\ 
may be excluded from the finance charge if the following conditions are 
met:
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    \5\ [Reserved]
---------------------------------------------------------------------------

    (i) The insurance coverage may be obtained from a person of the 
consumer's choice,\6\ and this fact is disclosed. (A creditor may 
reserve the right to refuse to accept, for reasonable cause, an insurer 
offered by the consumer.)
---------------------------------------------------------------------------

    \6\ [Reserved]
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    (ii) If the coverage is obtained from or through the creditor, the 
premium for the initial term of insurance coverage shall be disclosed. 
If the term of insurance is less than the term of the transaction, the 
term of insurance shall also be disclosed. The premium may be disclosed 
on a unit-cost basis only in open-end credit transactions, closed-end 
credit transactions by mail or telephone under Sec.  226.17(g), and 
certain closed-end credit transactions involving an insurance plan that 
limits the total amount of indebtedness subject to coverage.
    (3) Voluntary debt cancellation or debt suspension fees. Charges or 
premiums paid for debt cancellation coverage for amounts exceeding the 
value of the collateral securing the obligation or for debt 
cancellation or debt suspension coverage in the event of the loss of 
life, health, or income or in case of accident may be excluded from the 
finance charge, whether or not the coverage is insurance, if the 
following conditions are met:
    (i) The debt cancellation or debt suspension agreement or coverage 
is not required by the creditor, and this fact is disclosed in writing;
    (ii) The fee or premium for the initial term of coverage is 
disclosed in writing. If the term of coverage is less than the term of 
the credit transaction, the term of coverage also shall be disclosed. 
The fee or premium may be disclosed on a unit-cost basis only in open-
end credit transactions, closed-end credit transactions by mail or 
telephone under Sec.  226.17(g), and certain closed-end credit 
transactions involving a debt cancellation agreement that limits the 
total amount of indebtedness subject to coverage;
    (iii) The following are disclosed, as applicable, for debt 
suspension coverage: That the obligation to pay loan principal and 
interest is only suspended, and that interest will continue to accrue 
during the period of suspension.
    (iv) The consumer signs or initials an affirmative written request 
for coverage after receiving the disclosures specified in this 
paragraph, except as provided in paragraph (d)(4) of this section. Any 
consumer in the transaction may sign or initial the request.
    (4) Telephone purchases. If a consumer purchases credit insurance 
or debt cancellation or debt suspension coverage for an open-end (not 
home-secured) plan by telephone, the creditor must make the disclosures 
under paragraphs (d)(1)(i) and (ii) or (d)(3)(i) through (iii) of this 
section, as applicable, orally. In such a case, the creditor shall:
    (i) Maintain evidence that the consumer, after being provided the 
disclosures orally, affirmatively elected to purchase the insurance or 
coverage; and
    (ii) Mail the disclosures under paragraphs (d)(1)(i) and (ii) or 
(d)(3)(i) through (iii) of this section, as

[[Page 54206]]

applicable, within three business days after the telephone purchase.
    (e) Certain security interest charges. If itemized and disclosed, 
the following charges may be excluded from the finance charge:
    (1) Taxes and fees prescribed by law that actually are or will be 
paid to public officials for determining the existence of or for 
perfecting, releasing, or satisfying a security interest.
    (2) The premium for insurance in lieu of perfecting a security 
interest to the extent that the premium does not exceed the fees 
described in paragraph (e)(1) of this section that otherwise would be 
payable.
    (3) Taxes on security instruments. Any tax levied on security 
instruments or on documents evidencing indebtedness if the payment of 
such taxes is a requirement for recording the instrument securing the 
evidence of indebtedness.
    (f) Prohibited offsets. Interest, dividends, or other income 
received or to be received by the consumer on deposits or investments 
shall not be deducted in computing the finance charge.

Subpart B--Open-End Credit

    6. Section 226.5 is revised to read as follows:


Sec.  226.5  General disclosure requirements.

    (a) Form of disclosures. (1) General. (i) The creditor shall make 
the disclosures required by this subpart clearly and conspicuously.
    (ii) The creditor shall make the disclosures required by this 
subpart in writing,\7\ in a form that the consumer may keep,\8\ except 
that:
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    \7\ [Reserved]
    \8\ [Reserved]
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    (A) The following disclosures need not be written: Disclosures 
under Sec.  226.6(b)(3) of charges that are imposed as part of an open-
end (not home-secured) plan that are not required to be disclosed under 
Sec.  226.6(b)(2) and related disclosures under Sec.  
226.9(c)(2)(iii)(B) of charges; disclosures under Sec.  
226.9(c)(2)(vi); disclosures under Sec.  226.9(d) when a finance charge 
is imposed at the time of the transaction; and disclosures under Sec.  
226.56(b)(1)(i).
    (B) The following disclosures need not be in a retainable form: 
Disclosures that need not be written under paragraph (a)(1)(ii)(A) of 
this section; disclosures for credit and charge card applications and 
solicitations under Sec.  226.5a; home-equity disclosures under Sec.  
226.5b(d); the alternative summary billing-rights statement under Sec.  
226.9(a)(2); the credit and charge card renewal disclosures required 
under Sec.  226.9(e); and the payment requirements under Sec.  
226.10(b), except as provided in Sec.  226.7(b)(13).
    (iii) The disclosures required by this subpart may be provided to 
the consumer in electronic form, subject to compliance with the 
consumer consent and other applicable provisions of the Electronic 
Signatures in Global and National Commerce Act (E-Sign Act) (15 U.S.C. 
7001 et seq.). The disclosures required by Sec. Sec.  226.5a, 226.5b, 
and 226.16 may be provided to the consumer in electronic form without 
regard to the consumer consent or other provisions of the E-Sign Act in 
the circumstances set forth in those sections.
    (2) Terminology. (i) Terminology used in providing the disclosures 
required by this subpart shall be consistent.
    (ii) For home-equity plans subject to Sec.  226.5b, the terms 
finance charge and annual percentage rate, when required to be 
disclosed with a corresponding amount or percentage rate, shall be more 
conspicuous than any other required disclosure.\9\ The terms need not 
be more conspicuous when used for periodic statement disclosures under 
Sec.  226.7(a)(4) and for advertisements under Sec.  226.16.
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    \9\ [Reserved]
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    (iii) If disclosures are required to be presented in a tabular 
format pursuant to paragraph (a)(3) of this section, the term penalty 
APR shall be used, as applicable. The term penalty APR need not be used 
in reference to the annual percentage rate that applies with the loss 
of a promotional rate, assuming the annual percentage rate that applies 
is not greater than the annual percentage rate that would have applied 
at the end of the promotional period; or if the annual percentage rate 
that applies with the loss of a promotional rate is a variable rate, 
the annual percentage rate is calculated using the same index and 
margin as would have been used to calculate the annual percentage rate 
that would have applied at the end of the promotional period. If credit 
insurance or debt cancellation or debt suspension coverage is required 
as part of the plan, the term required shall be used and the program 
shall be identified by its name. If an annual percentage rate is 
required to be presented in a tabular format pursuant to paragraph 
(a)(3)(i) or (a)(3)(iii) of this section, the term fixed, or a similar 
term, may not be used to describe such rate unless the creditor also 
specifies a time period that the rate will be fixed and the rate will 
not increase during that period, or if no such time period is provided, 
the rate will not increase while the plan is open.
    (3) Specific formats. (i) Certain disclosures for credit and charge 
card applications and solicitations must be provided in a tabular 
format in accordance with the requirements of Sec.  226.5a(a)(2).
    (ii) Certain disclosures for home-equity plans must precede other 
disclosures and must be given in accordance with the requirements of 
Sec.  226.5b(a).
    (iii) Certain account-opening disclosures must be provided in a 
tabular format in accordance with the requirements of Sec.  
226.6(b)(1).
    (iv) Certain disclosures provided on periodic statements must be 
grouped together in accordance with the requirements of Sec.  
226.7(b)(6) and (b)(13).
    (v) Certain disclosures provided on periodic statements must be 
given in accordance with the requirements of Sec.  226.7(b)(12).
    (vi) Certain disclosures accompanying checks that access a credit 
card account must be provided in a tabular format in accordance with 
the requirements of Sec.  226.9(b)(3).
    (vii) Certain disclosures provided in a change-in-terms notice must 
be provided in a tabular format in accordance with the requirements of 
Sec.  226.9(c)(2)(iv)(C).
    (viii) Certain disclosures provided when a rate is increased due to 
delinquency, default or as a penalty must be provided in a tabular 
format in accordance with the requirements of Sec.  226.9(g)(3)(ii).
    (b) Time of disclosures. (1) Account-opening disclosures. (i) 
General rule. The creditor shall furnish account-opening disclosures 
required by Sec.  226.6 before the first transaction is made under the 
plan.
    (ii) Charges imposed as part of an open-end (not home-secured) 
plan. Charges that are imposed as part of an open-end (not home-
secured) plan and are not required to be disclosed under Sec.  
226.6(b)(2) may be disclosed after account opening but before the 
consumer agrees to pay or becomes obligated to pay for the charge, 
provided they are disclosed at a time and in a manner that a consumer 
would be likely to notice them. This provision does not apply to 
charges imposed as part of a home-equity plan subject to the 
requirements of Sec.  226.5b.
    (iii) Telephone purchases. Disclosures required by Sec.  226.6 may 
be provided as soon as reasonably practicable after the first 
transaction if:
    (A) The first transaction occurs when a consumer contacts a 
merchant by

[[Page 54207]]

telephone to purchase goods and at the same time the consumer accepts 
an offer to finance the purchase by establishing an open-end plan with 
the merchant or third-party creditor;
    (B) The merchant or third-party creditor permits consumers to 
return any goods financed under the plan and provides consumers with a 
sufficient time to reject the plan and return the goods free of cost 
after the merchant or third-party creditor has provided the written 
disclosures required by Sec.  226.6; and
    (C) The consumer's right to reject the plan and return the goods is 
disclosed to the consumer as a part of the offer to finance the 
purchase.
    (iv) Membership fees. (A) General. In general, a creditor may not 
collect any fee before account-opening disclosures are provided. A 
creditor may collect, or obtain the consumer's agreement to pay, 
membership fees, including application fees excludable from the finance 
charge under Sec.  226.4(c)(1), before providing account-opening 
disclosures if, after receiving the disclosures, the consumer may 
reject the plan and have no obligation to pay these fees (including 
application fees) or any other fee or charge. A membership fee for 
purposes of this paragraph has the same meaning as a fee for the 
issuance or availability of credit described in Sec.  226.5a(b)(2). If 
the consumer rejects the plan, the creditor must promptly refund the 
membership fee if it has been paid, or take other action necessary to 
ensure the consumer is not obligated to pay that fee or any other fee 
or charge.
    (B) Home-equity plans. Creditors offering home-equity plans subject 
to the requirements of Sec.  226.5b are not subject to the requirements 
of paragraph (b)(1)(iv)(A) of this section.
    (v) Application fees. A creditor may collect an application fee 
excludable from the finance charge under Sec.  226.4(c)(1) before 
providing account-opening disclosures. However, if a consumer rejects 
the plan after receiving account-opening disclosures, the consumer must 
have no obligation to pay such an application fee, or if the fee was 
paid, it must be refunded. See Sec.  226.5(b)(1)(iv).
    (2) Periodic statements. (i) The creditor shall mail or deliver a 
periodic statement as required by Sec.  226.7 for each billing cycle at 
the end of which an account has a debit or credit balance of more than 
$1 or on which a finance charge has been imposed. A periodic statement 
need not be sent for an account if the creditor deems it uncollectible, 
if delinquency collection proceedings have been instituted, if the 
creditor has charged off the account in accordance with loan-loss 
provisions and will not charge any additional fees or interest on the 
account, or if furnishing the statement would violate Federal law.
    (ii) Creditors must adopt reasonable procedures designed to ensure 
that periodic statements are mailed or delivered at least 21 days prior 
to the payment due date and the date on which any grace period 
expires.\10\ A creditor that fails to meet this requirement shall not 
treat a payment as late for any purpose or collect any finance or other 
charge imposed as a result of such failure. For purposes of this 
paragraph, ``grace period'' means a period within which any credit 
extended may be repaid without incurring a finance charge due to a 
periodic interest rate.
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    \10\ [Reserved]
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    (iii) The timing requirement under this paragraph (b)(2) does not 
apply if the creditor is unable to meet the requirement because of an 
act of God, war, civil disorder, natural disaster, or strike.
    (3) Credit and charge card application and solicitation 
disclosures. The card issuer shall furnish the disclosures for credit 
and charge card applications and solicitations in accordance with the 
timing requirements of Sec.  226.5a.
    (4) Home-equity plans. Disclosures for home-equity plans shall be 
made in accordance with the timing requirements of Sec.  226.5b(b).
    (c) Basis of disclosures and use of estimates. Disclosures shall 
reflect the terms of the legal obligation between the parties. If any 
information necessary for accurate disclosure is unknown to the 
creditor, it shall make the disclosure based on the best information 
reasonably available and shall state clearly that the disclosure is an 
estimate.
    (d) Multiple creditors; multiple consumers. If the credit plan 
involves more than one creditor, only one set of disclosures shall be 
given, and the creditors shall agree among themselves which creditor 
must comply with the requirements that this regulation imposes on any 
or all of them. If there is more than one consumer, the disclosures may 
be made to any consumer who is primarily liable on the account. If the 
right of rescission under Sec.  226.15 is applicable, however, the 
disclosures required by Sec. Sec.  226.6 and 226.15(b) shall be made to 
each consumer having the right to rescind.
    (e) Effect of subsequent events. If a disclosure becomes inaccurate 
because of an event that occurs after the creditor mails or delivers 
the disclosures, the resulting inaccuracy is not a violation of this 
regulation, although new disclosures may be required under Sec.  
226.9(c).
    7. Section 226.5a is revised to read as follows:


Sec.  226.5a  Credit and charge card applications and solicitations.

    (a) General rules. The card issuer shall provide the disclosures 
required under this section on or with a solicitation or an application 
to open a credit or charge card account.
    (1) Definition of solicitation. For purposes of this section, the 
term solicitation means an offer by the card issuer to open a credit or 
charge card account that does not require the consumer to complete an 
application. A ``firm offer of credit'' as defined in section 603(l) of 
the Fair Credit Reporting Act (15 U.S.C. 1681a(l)) for a credit or 
charge card is a solicitation for purposes of this section.
    (2) Form of disclosures; tabular format.
    (i) The disclosures in paragraphs (b)(1) through (5) (except for 
(b)(1)(iv)(B)) and (b)(7) through (15) of this section made pursuant to 
paragraph (c), (d)(2), (e)(1) or (f) of this section generally shall be 
in the form of a table with headings, content, and format substantially 
similar to any of the applicable tables found in G-10 in appendix G to 
this part.
    (ii) The table described in paragraph (a)(2)(i) of this section 
shall contain only the information required or permitted by this 
section. Other information may be presented on or with an application 
or solicitation, provided such information appears outside the required 
table.
    (iii) Disclosures required by paragraphs (b)(1)(iv)(B) and (b)(6) 
of this section must be placed directly beneath the table.
    (iv) When a tabular format is required, any annual percentage rate 
required to be disclosed pursuant to paragraph (b)(1) of this section, 
any introductory rate required to be disclosed pursuant to paragraph 
(b)(1)(ii) of this section, any rate that will apply after a premium 
initial rate expires required to be disclosed under paragraph 
(b)(1)(iii) of this section, and any fee or percentage amounts required 
to be disclosed pursuant to paragraphs (b)(2), (b)(4), (b)(8) through 
(b)(13) of this section must be disclosed in bold text. However, bold 
text shall not be used for: Any maximum limits on fee amounts disclosed 
in the table that do not relate to fees that vary by State; the amount 
of any periodic fee disclosed pursuant to paragraph (b)(2) of this 
section that is

[[Page 54208]]

not an annualized amount; and other annual percentage rates or fee 
amounts disclosed in the table.
    (v) For an application or a solicitation that is accessed by the 
consumer in electronic form, the disclosures required under this 
section may be provided to the consumer in electronic form on or with 
the application or solicitation.
    (vi)(A) Except as provided in paragraph (a)(2)(vi)(B) of this 
section, the table described in paragraph (a)(2)(i) of this section 
must be provided in a prominent location on or with an application or a 
solicitation.
    (B) If the table described in paragraph (a)(2)(i) of this section 
is provided electronically, it must be provided in close proximity to 
the application or solicitation.
    (3) Fees based on a percentage. If the amount of any fee required 
to be disclosed under this section is determined on the basis of a 
percentage of another amount, the percentage used and the 
identification of the amount against which the percentage is applied 
may be disclosed instead of the amount of the fee.
    (4) Fees that vary by State. Card issuers that impose fees referred 
to in paragraphs (b)(8) through (12) of this section that vary by State 
may, at the issuer's option, disclosed in the table required by 
paragraph (a)(2) of this section, the specific fee applicable to the 
consumer's account, or the range of the fees, if the disclosure 
includes a statement that the amount of the fee varies by State and 
refers the consumer to a disclosure provided with the table where the 
amount of the fee applicable to the consumer's account is disclosed. A 
card issuer may not list fees for multiple states in the table.
    (5) Exceptions. This section does not apply to:
    (i) Home-equity plans accessible by a credit or charge card that 
are subject to the requirements of Sec.  226.5b;
    (ii) Overdraft lines of credit tied to asset accounts accessed by 
check-guarantee cards or by debit cards;
    (iii) Lines of credit accessed by check-guarantee cards or by debit 
cards that can be used only at automated teller machines;
    (iv) Lines of credit accessed solely by account numbers;
    (v) Additions of a credit or charge card to an existing open-end 
plan;
    (vi) General purpose applications unless the application, or 
material accompanying it, indicates that it can be used to open a 
credit or charge card account; or
    (vii) Consumer-initiated requests for applications.
    (b) Required disclosures. The card issuer shall disclose the items 
in this paragraph on or with an application or a solicitation in 
accordance with the requirements of paragraphs (c), (d), (e)(1) or (f) 
of this section. A credit card issuer shall disclose all applicable 
items in this paragraph except for paragraph (b)(7) of this section. A 
charge card issuer shall disclose the applicable items in paragraphs 
(b)(2), (4), (7) through (12), and (15) of this section.
    (1) Annual percentage rate. Each periodic rate that may be used to 
compute the finance charge on an outstanding balance for purchases, a 
cash advance, or a balance transfer, expressed as an annual percentage 
rate (as determined by Sec.  226.14(b)). When more than one rate 
applies for a category of transactions, the range of balances to which 
each rate is applicable shall also be disclosed. The annual percentage 
rate for purchases disclosed pursuant to this paragraph shall be in at 
least 16-point type, except for the following: Oral disclosures of the 
annual percentage rate for purchases; or a penalty rate that may apply 
upon the occurrence of one or more specific events.
    (i) Variable rate information. If a rate disclosed under paragraph 
(b)(1) of this section is a variable rate, the card issuer shall also 
disclose the fact that the rate may vary and how the rate is 
determined. In describing how the applicable rate will be determined, 
the card issuer must identify the type of index or formula that is used 
in setting the rate. The value of the index and the amount of the 
margin that are used to calculate the variable rate shall not be 
disclosed in the table. A disclosure of any applicable limitations on 
rate increases or decreases shall not be included in the table.
    (ii) Discounted initial rate. If the initial rate is an 
introductory rate, as that term is defined in Sec.  226.16(g)(2)(ii), 
the card issuer must disclose in the table the introductory rate, the 
time period during which the introductory rate will remain in effect, 
and must use the term ``introductory'' or ``intro'' in immediate 
proximity to the introductory rate. The card issuer also must disclose 
the rate that would otherwise apply to the account pursuant to 
paragraph (b)(1) of this section. Where the rate is not tied to an 
index or formula, the card issuer must disclose the rate that will 
apply after the introductory rate expires. In a variable-rate account, 
the card issuer must disclose a rate based on the applicable index or 
formula in accordance with the accuracy requirements set forth in 
paragraphs (c), (d), or (e) of this section, as applicable.
    (iii) Premium initial rate. If the initial rate is temporary and is 
higher than the rate that will apply after the temporary rate expires, 
the card issuer must disclose the premium initial rate pursuant to 
paragraph (b)(1) of this section and the time period during which the 
premium initial rate will remain in effect. Consistent with paragraph 
(b)(1) of this section, the premium initial rate for purchases must be 
in at least 16-point type. The issuer must also disclose in the table 
the rate that will apply after the premium initial rate expires in at 
least 16-point type.
    (iv) Penalty rates. (A) In general. Except as provided in paragraph 
(b)(1)(iv)(B), if a rate may increase as a penalty for one or more 
events specified in the account agreement, such as a late payment or an 
extension of credit that exceeds the credit limit, the card issuer must 
disclose pursuant to paragraph (b)(1) of this section the increased 
rate that may apply, a brief description of the event or events that 
may result in the increased rate, and a brief description of how long 
the increased rate will remain in effect.
    (B) Introductory rates. If the issuer discloses an introductory 
rate, as that term is defined in Sec.  226.16(g)(2)(ii), in the table 
or in any written or electronic promotional materials accompanying 
applications or solicitations subject to paragraph (c) or (e) of this 
section, the issuer must briefly disclose directly beneath the table 
the circumstances, if any, under which the introductory rate may be 
revoked, and the type of rate that will apply after the introductory 
rate is revoked.
    (v) Rates that depend on consumer's creditworthiness. If a rate 
cannot be determined at the time disclosures are given because the rate 
depends, at least in part, on a later determination of the consumer's 
creditworthiness, the card issuer must disclose the specific rates or 
the range of rates that could apply and a statement that the rate for 
which the consumer may qualify at account opening will depend on the 
consumer's creditworthiness, and other factors if applicable. If the 
rate that depends, at least in part, on a later determination of the 
consumer's creditworthiness is a penalty rate, as described in 
paragraph (b)(1)(iv) of this section, the card issuer at its option may 
disclose the highest rate that could apply, instead of disclosing the 
specific rates or the range of rates that could apply.
    (vi) APRs that vary by State. Issuers imposing annual percentage 
rates that vary by State may, at the issuer's option, disclose in the 
table (A) the specific annual percentage rate applicable to the 
consumer's account, or (B) the range of

[[Page 54209]]

the annual percentage rates, if the disclosure includes a statement 
that the annual percentage rate varies by State and refers the consumer 
to a disclosure provided with the table where the annual percentage 
rate applicable to the consumer's account is disclosed. A card issuer 
may not list annual percentage rates for multiple states in the table.
    (2) Fees for issuance or availability. (i) Any annual or other 
periodic fee that may be imposed for the issuance or availability of a 
credit or charge card, including any fee based on account activity or 
inactivity; how frequently it will be imposed; and the annualized 
amount of the fee.
    (ii) Any non-periodic fee that relates to opening an account. A 
card issuer must disclose that the fee is a one-time fee.
    (3) Fixed finance charge; minimum interest charge. Any fixed 
finance charge and a brief description of the charge. Any minimum 
interest charge if it exceeds $1.00 that could be imposed during a 
billing cycle, and a brief description of the charge. The $1.00 
threshold amount shall be adjusted periodically by the Board to reflect 
changes in the Consumer Price Index. The Board shall calculate each 
year a price level adjusted minimum interest charge using the Consumer 
Price Index in effect on the June 1 of that year. When the cumulative 
change in the adjusted minimum value derived from applying the annual 
Consumer Price level to the current minimum interest charge threshold 
has risen by a whole dollar, the minimum interest charge will be 
increased by $1.00. The issuer may, at its option, disclose in the 
table minimum interest charges below this threshold.
    (4) Transaction charges. Any transaction charge imposed by the card 
issuer for the use of the card for purchases.
    (5) Grace period. The date by which or the period within which any 
credit extended for purchases may be repaid without incurring a finance 
charge due to a periodic interest rate and any conditions on the 
availability of the grace period. If no grace period is provided, that 
fact must be disclosed. If the length of the grace period varies, the 
card issuer may disclose the range of days, the minimum number of days, 
or the average number of days in the grace period, if the disclosure is 
identified as a range, minimum, or average. In disclosing in the 
tabular format a grace period that applies to all types of purchases, 
the phrase ``How to Avoid Paying Interest on Purchases'' shall be used 
as the heading for the row describing the grace period. If a grace 
period is not offered on all types of purchases, in disclosing this 
fact in the tabular format, the phrase ``Paying Interest'' shall be 
used as the heading for the row describing this fact.
    (6) Balance computation method. The name of the balance computation 
method listed in paragraph (g) of this section that is used to 
determine the balance for purchases on which the finance charge is 
computed, or an explanation of the method used if it is not listed. In 
determining which balance computation method to disclose, the card 
issuer shall assume that credit extended for purchases will not be 
repaid within the grace period, if any.
    (7) Statement on charge card payments. A statement that charges 
incurred by use of the charge card are due when the periodic statement 
is received.
    (8) Cash advance fee. Any fee imposed for an extension of credit in 
the form of cash or its equivalent.
    (9) Late payment fee. Any fee imposed for a late payment.
    (10) Over-the-limit fee. Any fee imposed for exceeding a credit 
limit.
    (11) Balance transfer fee. Any fee imposed to transfer an 
outstanding balance.
    (12) Returned-payment fee. Any fee imposed by the card issuer for a 
returned payment.
    (13) Required insurance, debt cancellation or debt suspension 
coverage. (i) A fee for insurance described in Sec.  226.4(b)(7) or 
debt cancellation or suspension coverage described in Sec.  
226.4(b)(10), if the insurance or debt cancellation or suspension 
coverage is required as part of the plan; and
    (ii) A cross reference to any additional information provided about 
the insurance or coverage accompanying the application or solicitation, 
as applicable.
    (14) Available credit. If a card issuer requires fees for the 
issuance or availability of credit described in paragraph (b)(2) of 
this section, or requires a security deposit for such credit, and the 
total amount of those required fees and/or security deposit that will 
be imposed and charged to the account when the account is opened is 15 
percent or more of the minimum credit limit for the card, a card issuer 
must disclose the available credit remaining after these fees or 
security deposit are debited to the account, assuming that the consumer 
receives the minimum credit limit. In determining whether the 15 
percent threshold test is met, the issuer must only consider fees for 
issuance or availability of credit, or a security deposit, that are 
required. If fees for issuance or availability are optional, these fees 
should not be considered in determining whether the disclosure must be 
given. Nonetheless, if the 15 percent threshold test is met, the issuer 
in providing the disclosure must disclose the amount of available 
credit calculated by excluding those optional fees, and the available 
credit including those optional fees. This paragraph does not apply 
with respect to fees or security deposits that are not debited to the 
account.
    (15) Web site reference. A reference to the Web site established by 
the Board and a statement that consumers may obtain on the Web site 
information about shopping for and using credit cards.
    (c) Direct mail and electronic applications and solicitations. (1) 
General. The card issuer shall disclose the applicable items in 
paragraph (b) of this section on or with an application or solicitation 
that is mailed to consumers or provided to consumers in electronic 
form.
    (2) Accuracy. (i) Disclosures in direct mail applications and 
solicitations must be accurate as of the time the disclosures are 
mailed. An accurate variable annual percentage rate is one in effect 
within 60 days before mailing.
    (ii) Disclosures provided in electronic form must be accurate as of 
the time they are sent, in the case of disclosures sent to a consumer's 
e-mail address, or as of the time they are viewed by the public, in the 
case of disclosures made available at a location such as a card 
issuer's Web site. An accurate variable annual percentage rate provided 
in electronic form is one in effect within 30 days before it is sent to 
a consumer's e-mail address, or viewed by the public, as applicable.
    (d) Telephone applications and solicitations. (1) Oral disclosure. 
The card issuer shall disclose orally the information in paragraphs 
(b)(1) through (7) and (b)(14) of this section, to the extent 
applicable, in a telephone application or solicitation initiated by the 
card issuer.
    (2) Alternative disclosure. The oral disclosure under paragraph 
(d)(1) of this section need not be given if the card issuer either:
    (i)(A) Does not impose a fee described in paragraph (b)(2) of this 
section; or
    (B) Imposes such a fee but provides the consumer with a right to 
reject the plan consistent with Sec.  226.5(b)(1)(iv); and
    (ii) The card issuer discloses in writing within 30 days after the 
consumer requests the card (but in no event later than the delivery of 
the card) the following:

[[Page 54210]]

    (A) The applicable information in paragraph (b) of this section; 
and
    (B) As applicable, the fact that the consumer has the right to 
reject the plan and not be obligated to pay fees described in paragraph 
(b)(2) or any other fees or charges until the consumer has used the 
account or made a payment on the account after receiving a billing 
statement.
    (3) Accuracy. (i) The oral disclosures under paragraph (d)(1) of 
this section must be accurate as of the time they are given.
    (ii) The alternative disclosures under paragraph (d)(2) of this 
section generally must be accurate as of the time they are mailed or 
delivered. A variable annual percentage rate is one that is accurate if 
it was:
    (A) In effect at the time the disclosures are mailed or delivered; 
or
    (B) In effect as of a specified date (which rate is then updated 
from time to time, but no less frequently than each calendar month).
    (e) Applications and solicitations made available to general 
public. The card issuer shall provide disclosures, to the extent 
applicable, on or with an application or solicitation that is made 
available to the general public, including one contained in a catalog, 
magazine, or other generally available publication. The disclosures 
shall be provided in accordance with paragraph (e)(1) or (e)(2) of this 
section.
    (1) Disclosure of required credit information. The card issuer may 
disclose in a prominent location on the application or solicitation the 
following:
    (i) The applicable information in paragraph (b) of this section;
    (ii) The date the required information was printed, including a 
statement that the required information was accurate as of that date 
and is subject to change after that date; and
    (iii) A statement that the consumer should contact the card issuer 
for any change in the required information since it was printed, and a 
toll-free telephone number or a mailing address for that purpose.
    (2) No disclosure of credit information. If none of the items in 
paragraph (b) of this section is provided on or with the application or 
solicitation, the card issuer may state in a prominent location on the 
application or solicitation the following:
    (i) There are costs associated with the use of the card; and
    (ii) The consumer may contact the card issuer to request specific 
information about the costs, along with a toll-free telephone number 
and a mailing address for that purpose.
    (3) Prompt response to requests for information. Upon receiving a 
request for any of the information referred to in this paragraph, the 
card issuer shall promptly and fully disclose the information 
requested.
    (4) Accuracy. The disclosures given pursuant to paragraph (e)(1) of 
this section must be accurate as of the date of printing. A variable 
annual percentage rate is accurate if it was in effect within 30 days 
before printing.
    (f) In-person applications and solicitations. A card issuer shall 
disclose the information in paragraph (b) of this section, to the 
extent applicable, on or with an application or solicitation that is 
initiated by the card issuer and given to the consumer in person. A 
card issuer complies with the requirements of this paragraph if the 
issuer provides disclosures in accordance with paragraph (c)(1) or 
(e)(1) of this section.
    (g) Balance computation methods defined. The following methods may 
be described by name. Methods that differ due to variations such as the 
allocation of payments, whether the finance charge begins to accrue on 
the transaction date or the date of posting the transaction, the 
existence or length of a grace period, and whether the balance is 
adjusted by charges such as late payment fees, annual fees and unpaid 
finance charges do not constitute separate balance computation methods.
    (1)(i) Average daily balance (including new purchases). This 
balance is figured by adding the outstanding balance (including new 
purchases and deducting payments and credits) for each day in the 
billing cycle, and then dividing by the number of days in the billing 
cycle.
    (ii) Average daily balance (excluding new purchases). This balance 
is figured by adding the outstanding balance (excluding new purchases 
and deducting payments and credits) for each day in the billing cycle, 
and then dividing by the number of days in the billing cycle.
    (2) Adjusted balance. This balance is figured by deducting payments 
and credits made during the billing cycle from the outstanding balance 
at the beginning of the billing cycle.
    (3) Previous balance. This balance is the outstanding balance at 
the beginning of the billing cycle.
    (4) Daily balance. For each day in the billing cycle, this balance 
is figured by taking the beginning balance each day, adding any new 
purchases, and subtracting any payment and credits.
    8. In Sec.  226.6, revise paragraph (b) to read as follows:


Sec.  226.6  Account-opening disclosures.

* * * * *
    (b) Rules affecting open-end (not home-secured) plans. The 
requirements of paragraph (b) of this section apply to plans other than 
home-equity plans subject to the requirements of Sec.  226.5b.
    (1) Form of disclosures; tabular format for open-end (not home-
secured) plans. Creditors must provide the account-opening disclosures 
specified in paragraph (b)(2)(i) through (b)(2)(v) (except for 
(b)(2)(i)(D)(2)) and (b)(2)(vii) through (b)(2)(xiv) of this section in 
the form of a table with the headings, content, and format 
substantially similar to any of the applicable tables in G-17 in 
appendix G.
    (i) Highlighting. In the table, any annual percentage rate required 
to be disclosed pursuant to paragraph (b)(2)(i) of this section; any 
introductory rate permitted to be disclosed pursuant to paragraph 
(b)(2)(i)(B) or required to be disclosed under paragraph (b)(2)(i)(F) 
of this section, any rate that will apply after a premium initial rate 
expires permitted to be disclosed pursuant to paragraph (b)(2)(i)(C) or 
required to be disclosed pursuant to paragraph (b)(2)(i)(F), and any 
fee or percentage amounts required to be disclosed pursuant to 
paragraphs (b)(2)(ii), (b)(2)(iv), (b)(2)(vii) through (b)(2)(xii) of 
this section must be disclosed in bold text. However, bold text shall 
not be used for: Any maximum limits on fee amounts disclosed in the 
table that do not relate to fees that vary by State; the amount of any 
periodic fee disclosed pursuant to paragraph (b)(2) of this section 
that is not an annualized amount; and other annual percentage rates or 
fee amounts disclosed in the table.
    (ii) Location. Only the information required or permitted by 
paragraphs (b)(2)(i) through (b)(2)(v) (except for (b)(2)(i)(D)(2)) and 
(b)(2)(vii) through (b)(2)(xiv) of this section shall be in the table. 
Disclosures required by paragraphs (b)(2)(i)(D)(2), (b)(2)(vi) and 
(b)(2)(xv) of this section shall be placed directly below the table. 
Disclosures required by paragraphs (b)(3) through (b)(5) of this 
section that are not otherwise required to be in the table and other 
information may be presented with the account agreement or account-
opening disclosure statement, provided such information appears outside 
the required table.
    (iii) Fees that vary by State. Creditors that impose fees referred 
to in paragraphs (b)(2)(vii) through (b)(2)(xi) of this section that 
vary by State and that provide the disclosures required by paragraph 
(b) of this section in person at the time the open-end (not home-

[[Page 54211]]

secured) plan is established in connection with financing the purchase 
of goods or services may, at the creditor's option, disclose in the 
account-opening table (A) the specific fee applicable to the consumer's 
account, or (B) the range of the fees, if the disclosure includes a 
statement that the amount of the fee varies by State and refers the 
consumer to the account agreement or other disclosure provided with the 
account-opening table where the amount of the fee applicable to the 
consumer's account is disclosed. A creditor may not list fees for 
multiple states in the account-opening summary table.
    (iv) Fees based on a percentage. If the amount of any fee required 
to be disclosed under this section is determined on the basis of a 
percentage of another amount, the percentage used and the 
identification of the amount against which the percentage is applied 
may be disclosed instead of the amount of the fee.
    (2) Required disclosures for account-opening table for open-end 
(not home-secured) plans. A creditor shall disclose the items in this 
section, to the extent applicable:
    (i) Annual percentage rate. Each periodic rate that may be used to 
compute the finance charge on an outstanding balance for purchases, a 
cash advance, or a balance transfer, expressed as an annual percentage 
rate (as determined by Sec.  226.14(b)). When more than one rate 
applies for a category of transactions, the range of balances to which 
each rate is applicable shall also be disclosed. The annual percentage 
rate for purchases disclosed pursuant to this paragraph shall be in at 
least 16-point type, except for the following: A penalty rate that may 
apply upon the occurrence of one or more specific events.
    (A) Variable-rate information. If a rate disclosed under paragraph 
(b)(2)(i) of this section is a variable rate, the creditor shall also 
disclose the fact that the rate may vary and how the rate is 
determined. In describing how the applicable rate will be determined, 
the creditor must identify the type of index or formula that is used in 
setting the rate. The value of the index and the amount of the margin 
that are used to calculate the variable rate shall not be disclosed in 
the table. A disclosure of any applicable limitations on rate increases 
or decreases shall not be included in the table.
    (B) Discounted initial rates. If the initial rate is an 
introductory rate, as that term is defined in Sec.  226.16(g)(2)(ii), 
the creditor must disclose the rate that would otherwise apply to the 
account pursuant to paragraph (b)(2)(i) of this section. Where the rate 
is not tied to an index or formula, the creditor must disclose the rate 
that will apply after the introductory rate expires. In a variable-rate 
account, the card issuer must disclose a rate based on the applicable 
index or formula in accordance with the accuracy requirements of 
paragraph (b)(4)(ii)(G) of this section. Except as provided in 
paragraph (b)(2)(i)(F) of this section, the creditor is not required 
to, but may disclose in the table the introductory rate along with the 
rate that would otherwise apply to the account if the creditor also 
discloses the time period during which the introductory rate will 
remain in effect, and uses the term ``introductory'' or ``intro'' in 
immediate proximity to the introductory rate.
    (C) Premium initial rate. If the initial rate is temporary and is 
higher than the rate that will apply after the temporary rate expires, 
the creditor must disclose the premium initial rate pursuant to 
paragraph (b)(2)(i) of this section. Consistent with paragraph 
(b)(2)(i) of this section, the premium initial rate for purchases must 
be in at least 16-point type. Except as provided in paragraph 
(b)(2)(i)(F) of this section, the creditor is not required to, but may 
disclose in the table the rate that will apply after the premium 
initial rate expires if the creditor also discloses the time period 
during which the premium initial rate will remain in effect. If the 
creditor also discloses in the table the rate that will apply after the 
premium initial rate for purchases expires, that rate also must be in 
at least 16-point type.
    (D) Penalty rates. (1) In general. Except as provided in paragraph 
(b)(2)(i)(D)(2) of this section, if a rate may increase as a penalty 
for one or more events specified in the account agreement, such as a 
late payment or an extension of credit that exceeds the credit limit, 
the creditor must disclose pursuant to paragraph (b)(2)(i) of this 
section the increased rate that may apply, a brief description of the 
event or events that may result in the increased rate, and a brief 
description of how long the increased rate will remain in effect. If 
more than one penalty rate may apply, the creditor at its option may 
disclose the highest rate that could apply, instead of disclosing the 
specific rates or the range of rates that could apply.
    (2) Introductory rates. If the creditor discloses in the table an 
introductory rate, as that term is defined in Sec.  226.16(g)(2)(ii), 
creditors must briefly disclose directly beneath the table the 
circumstances under which the introductory rate may be revoked, and the 
rate that will apply after the introductory rate is revoked.
    (E) Point of sale where APRs vary by State or based on 
creditworthiness. Creditors imposing annual percentage rates that vary 
by State or based on the consumer's creditworthiness and providing the 
disclosures required by paragraph (b) of this section in person at the 
time the open-end (not home-secured) plan is established in connection 
with financing the purchase of goods or services may, at the creditor's 
option, disclose pursuant to paragraph (b)(2)(i) of this section in the 
account-opening table:
    (1) The specific annual percentage rate applicable to the 
consumer's account; or
    (2) The range of the annual percentage rates, if the disclosure 
includes a statement that the annual percentage rate varies by State or 
will be determined based on the consumer's creditworthiness and refers 
the consumer to the account agreement or other disclosure provided with 
the account-opening table where the annual percentage rate applicable 
to the consumer's account is disclosed. A creditor may not list annual 
percentage rates for multiple states in the account-opening table.
    (F) Credit card accounts under an open-end (not home-secured) 
consumer credit plan. Notwithstanding paragraphs (b)(2)(i)(B) and 
(b)(2)(i)(C) of this section, for credit card accounts under an open-
end (not home-secured) plan, issuers must disclose in the table 
required by paragraph (b)(1) of this section, any introductory rate 
that would apply to the account, consistent with the requirements of 
paragraph (b)(2)(i)(B) of this section, and any rate that would apply 
upon the expiration of a premium initial rate, consistent with the 
requirements of paragraph (b)(2)(i)(C) of this section.
    (ii) Fees for issuance or availability. (A) Any annual or other 
periodic fee that may be imposed for the issuance or availability of an 
open-end plan, including any fee based on account activity or 
inactivity; how frequently it will be imposed; and the annualized 
amount of the fee.
    (B) Any non-periodic fee that relates to opening the plan. A 
creditor must disclose that the fee is a one-time fee.
    (iii) Fixed finance charge; minimum interest charge. Any fixed 
finance charge and a brief description of the charge. Any minimum 
interest charge if it exceeds $1.00 that could be imposed during a 
billing cycle, and a brief description of the charge. The $1.00 
threshold amount shall be adjusted periodically by the Board to reflect 
changes in the Consumer Price Index. The Board shall calculate each 
year a

[[Page 54212]]

price level adjusted minimum interest charge using the Consumer Price 
Index in effect on the June 1 of that year. When the cumulative change 
in the adjusted minimum value derived from applying the annual Consumer 
Price level to the current minimum interest charge threshold has risen 
by a whole dollar, the minimum interest charge will be increased by 
$1.00. The creditor may, at its option, disclose in the table minimum 
interest charges below this threshold.
    (iv) Transaction charges. Any transaction charge imposed by the 
creditor for use of the open-end plan for purchases.
    (v) Grace period. The date by which or the period within which any 
credit extended may be repaid without incurring a finance charge due to 
a periodic interest rate and any conditions on the availability of the 
grace period. If no grace period is provided, that fact must be 
disclosed. If the length of the grace period varies, the creditor may 
disclose the range of days, the minimum number of days, or the average 
number of the days in the grace period, if the disclosure is identified 
as a range, minimum, or average. In disclosing in the tabular format a 
grace period that applies to all features on the account, the phrase 
``How to Avoid Paying Interest'' shall be used as the heading for the 
row describing the grace period. If a grace period is not offered on 
all features of the account, in disclosing this fact in the tabular 
format, the phrase ``Paying Interest'' shall be used as the heading for 
the row describing this fact.
    (vi) Balance computation method. The name of the balance 
computation method listed in Sec.  226.5a(g) that is used to determine 
the balance on which the finance charge is computed for each feature, 
or an explanation of the method used if it is not listed, along with a 
statement that an explanation of the method(s) required by paragraph 
(b)(4)(i)(D) of this section is provided with the account-opening 
disclosures. In determining which balance computation method to 
disclose, the creditor shall assume that credit extended will not be 
repaid within any grace period, if any.
    (vii) Cash advance fee. Any fee imposed for an extension of credit 
in the form of cash or its equivalent.
    (viii) Late payment fee. Any fee imposed for a late payment.
    (ix) Over-the-limit fee. Any fee imposed for exceeding a credit 
limit.
    (x) Balance transfer fee. Any fee imposed to transfer an 
outstanding balance.
    (xi) Returned-payment fee. Any fee imposed by the creditor for a 
returned payment.
    (xii) Required insurance, debt cancellation or debt suspension 
coverage. (A) A fee for insurance described in Sec.  226.4(b)(7) or 
debt cancellation or suspension coverage described in Sec.  
226.4(b)(10), if the insurance, or debt cancellation or suspension 
coverage is required as part of the plan; and
    (B) A cross reference to any additional information provided about 
the insurance or coverage, as applicable.
    (xiii) Available credit. If a creditor requires fees for the 
issuance or availability of credit described in paragraph (b)(2)(ii) of 
this section, or requires a security deposit for such credit, and the 
total amount of those required fees and/or security deposit that will 
be imposed and charged to the account when the account is opened is 15 
percent or more of the minimum credit limit for the plan, a creditor 
must disclose the available credit remaining after these fees or 
security deposit are debited to the account. The determination whether 
the 15 percent threshold is met must be based on the minimum credit 
limit for the plan. However, the disclosure provided under this 
paragraph must be based on the actual initial credit limit provided on 
the account. In determining whether the 15 percent threshold test is 
met, the creditor must only consider fees for issuance or availability 
of credit, or a security deposit, that are required. If fees for 
issuance or availability are optional, these fees should not be 
considered in determining whether the disclosure must be given. 
Nonetheless, if the 15 percent threshold test is met, the creditor in 
providing the disclosure must disclose the amount of available credit 
calculated by excluding those optional fees, and the available credit 
including those optional fees. The creditor shall also disclose that 
the consumer has the right to reject the plan and not be obligated to 
pay those fees or any other fee or charges until the consumer has used 
the account or made a payment on the account after receiving a periodic 
statement. This paragraph does not apply with respect to fees or 
security deposits that are not debited to the account.
    (xiv) Web site reference. For issuers of credit cards that are not 
charge cards, a reference to the Web site established by the Board and 
a statement that consumers may obtain on the Web site information about 
shopping for and using credit cards.
    (xv) Billing error rights reference. A statement that information 
about consumers' right to dispute transactions is included in the 
account-opening disclosures.
    (3) Disclosure of charges imposed as part of open-end (not home-
secured) plans. A creditor shall disclose, to the extent applicable:
    (i) For charges imposed as part of an open-end (not home-secured) 
plan, the circumstances under which the charge may be imposed, 
including the amount of the charge or an explanation of how the charge 
is determined. For finance charges, a statement of when the charge 
begins to accrue and an explanation of whether or not any time period 
exists within which any credit that has been extended may be repaid 
without incurring the charge. If such a time period is provided, a 
creditor may, at its option and without disclosure, elect not to impose 
a finance charge when payment is received after the time period 
expires.
    (ii) Charges imposed as part of the plan are:
    (A) Finance charges identified under Sec.  226.4(a) and Sec.  
226.4(b).
    (B) Charges resulting from the consumer's failure to use the plan 
as agreed, except amounts payable for collection activity after 
default, attorney's fees whether or not automatically imposed, and 
post-judgment interest rates permitted by law.
    (C) Taxes imposed on the credit transaction by a State or other 
governmental body, such as documentary stamp taxes on cash advances.
    (D) Charges for which the payment, or nonpayment, affect the 
consumer's access to the plan, the duration of the plan, the amount of 
credit extended, the period for which credit is extended, or the timing 
or method of billing or payment.
    (E) Charges imposed for terminating a plan.
    (F) Charges for voluntary credit insurance, debt cancellation or 
debt suspension.
    (iii) Charges that are not imposed as part of the plan include:
    (A) Charges imposed on a cardholder by an institution other than 
the card issuer for the use of the other institution's ATM in a shared 
or interchange system.
    (B) A charge for a package of services that includes an open-end 
credit feature, if the fee is required whether or not the open-end 
credit feature is included and the non-credit services are not merely 
incidental to the credit feature.
    (C) Charges under Sec.  226.4(e) disclosed as specified.

[[Page 54213]]

    (4) Disclosure of rates for open-end (not home-secured) plans. A 
creditor shall disclose, to the extent applicable:
    (i) For each periodic rate that may be used to calculate interest:
    (A) Rates. The rate, expressed as a periodic rate and a 
corresponding annual percentage rate.
    (B) Range of balances. The range of balances to which the rate is 
applicable; however, a creditor is not required to adjust the range of 
balances disclosure to reflect the balance below which only a minimum 
charge applies.
    (C) Type of transaction. The type of transaction to which the rate 
applies, if different rates apply to different types of transactions.
    (D) Balance computation method. An explanation of the method used 
to determine the balance to which the rate is applied.
    (ii) Variable-rate accounts. For interest rate changes that are 
tied to increases in an index or formula (variable-rate accounts) 
specifically set forth in the account agreement:
    (A) The fact that the annual percentage rate may increase.
    (B) How the rate is determined, including the margin.
    (C) The circumstances under which the rate may increase.
    (D) The frequency with which the rate may increase.
    (E) Any limitation on the amount the rate may change.
    (F) The effect(s) of an increase.
    (G) A rate is accurate if it is a rate as of a specified date and 
this rate was in effect within the last 30 days before the disclosures 
are provided.
    (iii) Rate changes not due to index or formula. For interest rate 
changes that are specifically set forth in the account agreement and 
not tied to increases in an index or formula:
    (A) The initial rate (expressed as a periodic rate and a 
corresponding annual percentage rate) required under paragraph 
(b)(4)(i)(A) of this section.
    (B) How long the initial rate will remain in effect and the 
specific events that cause the initial rate to change.
    (C) The rate (expressed as a periodic rate and a corresponding 
annual percentage rate) that will apply when the initial rate is no 
longer in effect and any limitation on the time period the new rate 
will remain in effect.
    (D) The balances to which the new rate will apply.
    (E) The balances to which the current rate at the time of the 
change will apply.
    (5) Additional disclosures for open-end (not home-secured) plans. A 
creditor shall disclose, to the extent applicable:
    (i) Voluntary credit insurance, debt cancellation or debt 
suspension. The disclosures in Sec. Sec.  226.4(d)(1)(i) and (d)(1)(ii) 
and (d)(3)(i) through (d)(3)(iii) if the creditor offers optional 
credit insurance or debt cancellation or debt suspension coverage that 
is identified in Sec.  226.4(b)(7) or (b)(10).
    (ii) Security interests. The fact that the creditor has or will 
acquire a security interest in the property purchased under the plan, 
or in other property identified by item or type.
    (iii) Statement of billing rights. A statement that outlines the 
consumer's rights and the creditor's responsibilities under Sec. Sec.  
226.12(c) and 226.13 and that is substantially similar to the statement 
found in Model Form G-3(A) in appendix G to this part.
    9. Section 226.7 is amended by revising paragraph (b), removing 
paragraphs (c), (d), (e), (f), (g), (h), (i), (j), and (k), and 
removing and reserving footnotes 14 and 15 to read as follows:


Sec.  226.7  Periodic statement.

* * * * *
    (b) Rules affecting open-end (not home-secured) plans. The 
requirements of paragraph (b) of this section apply only to plans other 
than home-equity plans subject to the requirements of Sec.  226.5b.
    (1) Previous balance. The account balance outstanding at the 
beginning of the billing cycle.
    (2) Identification of transactions. An identification of each 
credit transaction in accordance with Sec.  226.8.
    (3) Credits. Any credit to the account during the billing cycle, 
including the amount and the date of crediting. The date need not be 
provided if a delay in crediting does not result in any finance or 
other charge.
    (4) Periodic rates. (i) Except as provided in paragraph (b)(4)(ii) 
of this section, each periodic rate that may be used to compute the 
interest charge expressed as an annual percentage rate and using the 
term, Annual Percentage Rate, along with the range of balances to which 
it is applicable. If no interest charge is imposed when the outstanding 
balance is less than a certain amount, the creditor is not required to 
disclose that fact, or the balance below which no interest charge will 
be imposed. The types of transactions to which the periodic rates apply 
shall also be disclosed. For variable-rate plans, the fact that the 
annual percentage rate may vary.
    (ii) Exception. A promotional rate, as that term is defined in 
Sec.  226.16(g)(2)(i) is required to be disclosed only in periods in 
which the offered rate is actually applied.
    (5) Balance on which finance charge computed. The amount of the 
balance to which a periodic rate was applied and an explanation of how 
that balance was determined, using the term Balance Subject to Interest 
Rate. When a balance is determined without first deducting all credits 
and payments made during the billing cycle, the fact and the amount of 
the credits and payments shall be disclosed. As an alternative to 
providing an explanation of how the balance was determined, a creditor 
that uses a balance computation method identified in Sec.  226.5a(g) 
may, at the creditor's option, identify the name of the balance 
computation method and provide a toll-free telephone number where 
consumers may obtain from the creditor more information about the 
balance computation method and how resulting interest charges were 
determined. If the method used is not identified in Sec.  226.5a(g), 
the creditor shall provide a brief explanation of the method used.
    (6) Charges imposed. (i) The amounts of any charges imposed as part 
of a plan as stated in Sec.  226.6(b)(3), grouped together, in 
proximity to transactions identified under paragraph (b)(2) of this 
section, substantially similar to Sample G-18(A) in appendix G to this 
part.
    (ii) Interest. Finance charges attributable to periodic interest 
rates, using the term Interest Charge, must be grouped together under 
the heading Interest Charged, itemized and totaled by type of 
transaction, and a total of finance charges attributable to periodic 
interest rates, using the term Total Interest, must be disclosed for 
the statement period and calendar year to date, using a format 
substantially similar to Sample G-18(A) in appendix G to this part.
    (iii) Fees. Charges imposed as part of the plan other than charges 
attributable to periodic interest rates must be grouped together under 
the heading Fees, identified consistent with the feature or type, and 
itemized, and a total of charges, using the term Fees, must be 
disclosed for the statement period and calendar year to date, using a 
format substantially similar to Sample G-18(A) in appendix G.
    (7) Change-in-terms and increased penalty rate summary for open-end 
(not home-secured) plans. Creditors that provide a change-in-terms 
notice required by Sec.  226.9(c), or a rate increase notice required 
by Sec.  226.9(g), on or with the periodic statement, must disclose the 
information in Sec.  226.9(c)(2)(iv)(A) and (c)(2)(iv)(B) (if 
applicable) or Sec.  226.9(g)(3)(i) on the periodic statement in 
accordance with the format requirements in Sec.  226.9(c)(2)(iv)(C), 
and Sec.  226.9(g)(3)(ii). See Forms G-18(F) and G-18(G) in appendix G 
to this part.

[[Page 54214]]

    (8) Grace period. The date by which or the time period within which 
the new balance or any portion of the new balance must be paid to avoid 
additional finance charges. If such a time period is provided, a 
creditor may, at its option and without disclosure, impose no finance 
charge if payment is received after the time period's expiration.
    (9) Address for notice of billing errors. The address to be used 
for notice of billing errors. Alternatively, the address may be 
provided on the billing rights statement permitted by Sec.  
226.9(a)(2).
    (10) Closing date of billing cycle; new balance. The closing date 
of the billing cycle and the account balance outstanding on that date. 
The new balance must be disclosed in accordance with the format 
requirements of paragraph (b)(13) of this section.
    (11) Due date; late payment costs. (i) Except as provided in 
paragraph (b)(11)(ii) of this section and in accordance with the format 
requirements in paragraph (b)(13) of this section, for a credit card 
account under an open-end (not home-secured) consumer credit plan, a 
card issuer must provide on each periodic statement:
    (A) The due date for a payment. The due date disclosed pursuant to 
this paragraph shall be the same day of the month for each billing 
cycle.
    (B) The amount of any late payment fee and any increased periodic 
rate(s) (expressed as an annual percentage rate(s)) that may be imposed 
on the account as a result of a late payment. If a range of late 
payment fees may be assessed, the card issuer may state the range of 
fees, or the highest fee and at the issuer's option with the highest 
fee an indication that the fee imposed could be lower. If the rate may 
be increased for more than one feature or balance, the card issuer may 
state the range of rates or the highest rate that could apply and at 
the issuer's option an indication that the rate imposed could be lower.
    (ii) Exception. The requirements of paragraph (b)(11)(i)(B) of this 
section do not apply to periodic statements provided solely for charge 
card accounts.
    (12) Repayment disclosures. (i) In general. Except as provided in 
paragraphs (b)(12)(ii) and (b)(12)(v), for a credit card account under 
an open-end (not home-secured) consumer credit plan, a card issuer must 
provide the following disclosures on each periodic statement:
    (A) The following statement with a bold heading: ``Minimum Payment 
Warning: If you make only the minimum payment each period, you will pay 
more in interest and it will take you longer to pay off your balance;''
    (B) The minimum payment repayment estimate, as described in 
Appendix M1 to this part. If the minimum payment repayment estimate is 
less than 2 years, the card issuers must disclose the estimate in 
months. Otherwise, the estimate must be disclosed in years and rounded 
to the nearest whole year;
    (C) The minimum payment total cost estimate, as described in 
Appendix M1 to this part. The minimum payment total cost estimate must 
be rounded to the nearest whole dollar;
    (D) A statement that the minimum payment repayment estimate and the 
minimum payment total cost estimate are based on the current 
outstanding balance shown on the periodic statement. A statement that 
the minimum payment repayment estimate and the minimum payment total 
cost estimate are based on the assumption that only minimum payments 
are made and no other amounts are added to the balance;
    (E) A toll-free telephone number where the consumer may obtain from 
the card issuer information about credit counseling services consistent 
with paragraph (b)(12)(iv) of this section; and
    (F) Except if the minimum payment repayment estimate that is 
disclosed on the periodic statement pursuant to paragraph (b)(12)(i)(B) 
of this section is three years or less, the following disclosures:
    (1) The estimated monthly payment for repayment in 36 months, as 
described in Appendix M1 to this part. The estimated monthly payment 
for repayment in 36 months must be rounded to the nearest whole dollar;
    (2) A statement that the card issuer estimates that the consumer 
will repay the outstanding balance shown on the periodic statement in 3 
years if the consumer pays the estimated monthly payment each month for 
3 years;
    (3) The total cost estimate for repayment in 36 months, as 
described in Appendix M1 to this part. The total cost estimate for 
repayment in 36 months must be rounded to the nearest whole dollar; and
    (4) The savings estimate for repayment in 36 months, as described 
in Appendix M1 to this part. The savings estimate for repayment in 36 
months must be rounded to the nearest whole dollar.
    (ii) Negative or no amortization. If negative or no amortization 
occurs when calculating the minimum payment repayment estimate as 
described in Appendix M1 of this part, a card issuer must provide the 
following disclosures on the periodic statement instead of the 
disclosures set forth in paragraph (b)(12)(i) of this section:
    (A) The following statement: ``Minimum Payment Warning: Even if you 
make no more charges using this card, if you make only the minimum 
payment each month we estimate you will never pay off the balance shown 
on this statement because your payment will be less than the interest 
charged each month;''
    (B) The following statement: ``If you make more than the minimum 
payment each period, you will pay less in interest and pay off your 
balance sooner;''
    (C) The estimated monthly payment for repayment in 36 months, as 
described in Appendix M1 to this part. The estimated monthly payment 
for repayment in 36 months must be rounded to the nearest whole dollar;
    (D) A statement that the card issuer estimates that the consumer 
will repay the outstanding balance shown on the periodic statement in 3 
years if the consumer pays the estimated monthly payment each month for 
3 years; and
    (E) A toll-free telephone number where the consumer may obtain from 
the card issuer information about credit counseling services consistent 
with paragraph (b)(12)(iv) of this section.
    (iii) Format requirements. A card issuer must provide the 
disclosures required by paragraph (b)(12)(i) or (b)(12)(ii) of this 
section in accordance with the format requirements of paragraph (b)(13) 
of this section, and in a format substantially similar to Samples G-
18(C)(1), G-18(C)(2) and G-18(C)(3) in Appendix G to this part, as 
applicable.
    (iv) Provision of information about credit counseling services. A 
card issuer must provide the following information about credit 
counseling services through the toll-free telephone number disclosed 
pursuant to paragraphs (b)(12)(i) or (b)(12)(ii) of this section:
    (A) The name, street address, telephone number, and Web site 
address for at least three organizations that have been approved by the 
United States Trustee or a bankruptcy administrator pursuant to 11 
U.S.C. 111(a)(1) to provide credit counseling services in the State in 
which the billing address for the account is located or the State 
specified by the consumer.
    (B) Upon the request of the consumer and to the extent available 
from the United States Trustee or a bankruptcy administrator, the name, 
street address, telephone number, and Web site address for at least one 
organization that satisfies the requirements in paragraph 
(b)(12)(iv)(A) of this section and provides credit counseling services 
in a

[[Page 54215]]

language other than English that is specified by the consumer.
    (v) Exemptions. Paragraph (b)(12) of this section does not apply 
to:
    (A) Charge card accounts that require payment of outstanding 
balances in full at the end of each billing cycle;
    (B) A billing cycle immediately following two consecutive billing 
cycles in which the consumer paid the entire balance in full, had a 
zero outstanding balance or had a credit balance; and
    (C) A billing cycle where paying the minimum payment due for that 
billing cycle will pay the entire outstanding balance on the account 
for that billing cycle.
    (13) Format requirements. The due date required by paragraph 
(b)(11) of this section shall be disclosed on the front of the first 
page of the periodic statement. The amount of the late payment fee and 
the annual percentage rate(s) required by paragraph (b)(11) of this 
section shall be stated in close proximity to the due date. The ending 
balance required by paragraph (b)(10) of this section and the 
disclosures required by paragraph (b)(12) of this section shall be 
disclosed closely proximate to the minimum payment due. The due date, 
late payment fee and annual percentage rate, ending balance, minimum 
payment due, and disclosures required by paragraph (b)(12) of this 
section shall be grouped together. Sample G-18(D) in Appendix G to this 
part sets forth an example of how these terms may be grouped.
    (14) Deferred interest or similar transactions. For accounts with 
an outstanding balance subject to a deferred interest or similar 
program, the date by which that outstanding balance must be paid in 
full in order to avoid the obligation to pay finance charges on such 
balance must be disclosed on the front of the periodic statement for 
two billing cycles immediately preceding the billing cycle in which 
such date occurs. The disclosure provided pursuant to this paragraph 
must be substantially similar to Sample G-18(H) in Appendix G to this 
part.
    10. Section 226.8 is revised to read as follows:


Sec.  226.8  Identifying transactions on periodic statements.

    The creditor shall identify credit transactions on or with the 
first periodic statement that reflects the transaction by furnishing 
the following information, as applicable.\16\
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    \16\ [Reserved]
---------------------------------------------------------------------------

    (a) Sale credit. (1) Except as provided in paragraph (a)(2) of this 
section, for each credit transaction involving the sale of property or 
services, the creditor must disclose the amount and date of the 
transaction, and either:
    (i) A brief identification \17\ of the property or services 
purchased, for creditors and sellers that are the same or related; \18\ 
or
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    \17\ [Reserved]
    \18\ [Reserved]
---------------------------------------------------------------------------

    (ii) The seller's name; and the city and State or foreign country 
where the transaction took place.\19\ The creditor may omit the address 
or provide any suitable designation that helps the consumer to identify 
the transaction when the transaction took place at a location that is 
not fixed; took place in the consumer's home; or was a mail, Internet, 
or telephone order.
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    \19\ [Reserved]
---------------------------------------------------------------------------

    (2) Creditors need not comply with paragraph (a)(1) of this section 
if an actual copy of the receipt or other credit document is provided 
with the first periodic statement reflecting the transaction, and the 
amount of the transaction and either the date of the transaction to the 
consumer's account or the date of debiting the transaction are 
disclosed on the copy or on the periodic statement.
    (b) Nonsale credit. For each credit transaction not involving the 
sale of property or services, the creditor must disclose a brief 
identification of the transaction; \20\ the amount of the transaction; 
and at least one of the following dates: The date of the transaction, 
the date the transaction was debited to the consumer's account, or, if 
the consumer signed the credit document, the date appearing on the 
document. If an actual copy of the receipt or other credit document is 
provided and that copy shows the amount and at least one of the 
specified dates, the brief identification may be omitted.
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    \20\ [Reserved]
---------------------------------------------------------------------------

    (c) Alternative creditor procedures; consumer inquiries for 
clarification or documentation. The following procedures apply to 
creditors that treat an inquiry for clarification or documentation as a 
notice of a billing error, including correcting the account in 
accordance with Sec.  226.13(e):
    (1) Failure to disclose the information required by paragraphs (a) 
and (b) of this section is not a failure to comply with the regulation, 
provided that the creditor also maintains procedures reasonably 
designed to obtain and provide the information. This applies to 
transactions that take place outside a State, as defined in Sec.  
226.2(a)(26), whether or not the creditor maintains procedures 
reasonably adapted to obtain the required information.
    (2) As an alternative to the brief identification for sale or 
nonsale credit, the creditor may disclose a number or symbol that also 
appears on the receipt or other credit document given to the consumer, 
if the number or symbol reasonably identifies that transaction with 
that creditor.
    11. Section 226.9 is amended by revising paragraphs (a), (b), 
(c)(2), (e), (g), and (h) and to read as follows:


Sec.  226.9  Subsequent disclosure requirements.

    (a) Furnishing statement of billing rights. (1) Annual statement. 
The creditor shall mail or deliver the billing rights statement 
required by Sec.  226.6(a)(5) and (b)(5)(iii) at least once per 
calendar year, at intervals of not less than 6 months nor more than 18 
months, either to all consumers or to each consumer entitled to receive 
a periodic statement under Sec.  226.5(b)(2) for any one billing cycle.
    (2) Alternative summary statement. As an alternative to paragraph 
(a)(1) of this section, the creditor may mail or deliver, on or with 
each periodic statement, a statement substantially similar to Model 
Form G-4 or Model Form G-4(A) in appendix G to this part, as 
applicable. Creditors offering home-equity plans subject to the 
requirements of Sec.  226.5b may use either Model Form, at their 
option.
    (b) Disclosures for supplemental credit access devices and 
additional features. (1) If a creditor, within 30 days after mailing or 
delivering the account-opening disclosures under Sec.  226.6(a)(1) or 
(b)(3)(ii)(A), as applicable, adds a credit feature to the consumer's 
account or mails or delivers to the consumer a credit access device, 
including but not limited to checks that access a credit card account, 
for which the finance charge terms are the same as those previously 
disclosed, no additional disclosures are necessary. Except as provided 
in paragraph (b)(3) of this section, after 30 days, if the creditor 
adds a credit feature or furnishes a credit access device (other than 
as a renewal, resupply, or the original issuance of a credit card) on 
the same finance charge terms, the creditor shall disclose, before the 
consumer uses the feature or device for the first time, that it is for 
use in obtaining credit under the terms previously disclosed.
    (2) Except as provided in paragraph (b)(3) of this section, 
whenever a credit feature is added or a credit access device is mailed 
or delivered, and the finance charge terms for the feature or device 
differ from disclosures

[[Page 54216]]

previously given, the disclosures required by Sec.  226.6(a)(1) or 
(b)(3)(ii)(A), as applicable, that are applicable to the added feature 
or device shall be given before the consumer uses the feature or device 
for the first time.
    (3) Checks that access a credit card account.
    (i) Disclosures. For open-end plans not subject to the requirements 
of Sec.  226.5b, if checks that can be used to access a credit card 
account are provided more than 30 days after account-opening 
disclosures under Sec.  226.6(b) are mailed or delivered, or are 
provided within 30 days of the account-opening disclosures and the 
finance charge terms for the checks differ from the finance charge 
terms previously disclosed, the creditor shall disclose on the front of 
the page containing the checks the following terms in the form of a 
table with the headings, content, and form substantially similar to 
Sample G-19 in appendix G to this part:
    (A) If a promotional rate, as that term is defined in Sec.  
226.16(g)(2)(i) applies to the checks:
    (1) The promotional rate and the time period during which the 
promotional rate will remain in effect;
    (2) The type of rate that will apply (such as whether the purchase 
or cash advance rate applies) after the promotional rate expires, and 
the annual percentage rate that will apply after the promotional rate 
expires. For a variable-rate account, a creditor must disclose an 
annual percentage rate based on the applicable index or formula in 
accordance with the accuracy requirements set forth in paragraph 
(b)(3)(ii) of this section; and
    (3) The date, if any, by which the consumer must use the checks in 
order to qualify for the promotional rate. If the creditor will honor 
checks used after such date but will apply an annual percentage rate 
other than the promotional rate, the creditor must disclose this fact 
and the type of annual percentage rate that will apply if the consumer 
uses the checks after such date.
    (B) If no promotional rate applies to the checks:
    (1) The type of rate that will apply to the checks and the 
applicable annual percentage rate. For a variable-rate account, a 
creditor must disclose an annual percentage rate based on the 
applicable index or formula in accordance with the accuracy 
requirements set forth in paragraph (b)(3)(ii) of this section.
    (2) [Reserved]
    (C) Any transaction fees applicable to the checks disclosed under 
Sec.  226.6(b)(2)(iv); and
    (D) Whether or not a grace period is given within which any credit 
extended by use of the checks may be repaid without incurring a finance 
charge due to a periodic interest rate. When disclosing whether there 
is a grace period, the phrase ``How to Avoid Paying Interest on Check 
Transactions'' shall be used as the row heading when a grace period 
applies to credit extended by the use of the checks. When disclosing 
the fact that no grace period exists for credit extended by use of the 
checks, the phrase ``Paying Interest'' shall be used as the row 
heading.
    (ii) Accuracy. The disclosures in paragraph (b)(3)(i) of this 
section must be accurate as of the time the disclosures are mailed or 
delivered. A variable annual percentage rate is accurate if it was in 
effect within 60 days of when the disclosures are mailed or delivered.
    (c)* * *
    (2) Rules affecting open-end (not home-secured) plans. (i) Changes 
where written advance notice is required. For plans other than home-
equity plans subject to the requirements of Sec.  226.5b, except as 
provided in paragraphs (c)(2)(iii) and (c)(2)(v) of this section, when 
a significant change in account terms as described in paragraph 
(c)(2)(ii) of this section is made to a term required to be disclosed 
under Sec.  226.6(b)(3), (b)(4) or (b)(5) is changed or the required 
minimum periodic payment is increased, a creditor must provide a 
written notice of the change at least 45 days prior to the effective 
date of the change to each consumer who may be affected. The 45-day 
timing requirement does not apply if the consumer has agreed to a 
particular change; the notice shall be given, however, before the 
effective date of the change. Increases in the rate applicable to a 
consumer's account due to delinquency, default or as a penalty 
described in paragraph (g) of this section that are not due to a change 
in the contractual terms of the consumer's account must be disclosed 
pursuant to paragraph (g) of this section instead of paragraph (c)(2) 
of this section.
    (ii) Significant changes in account terms. For purposes of this 
section, a ``significant change in account terms'' means a change to a 
term required to be disclosed under Sec.  226.6(b)(1) and (b)(2) or an 
increase in the required minimum periodic payment.
    (iii) Charges not covered by Sec.  226.6(b)(1) and (b)(2). Except 
as provided in paragraph (c)(2)(vi) of this section, if a creditor 
increases any component of a charge, or introduces a new charge, 
required to be disclosed under Sec.  226.6(b)(3) that is not a 
significant change in account terms as described in paragraph 
(c)(2)(ii) of this section, a creditor may either, at its option:
    (A) Comply with the requirements of paragraph (c)(2)(i) of this 
section; or
    (B) Provide notice of the amount of the charge before the consumer 
agrees to or becomes obligated to pay the charge, at a time and in a 
manner that a consumer would be likely to notice the disclosure of the 
charge. The notice may be provided orally or in writing.
    (iv) Disclosure requirements. (A) Significant changes in account 
terms. If a creditor makes a significant change in account terms as 
described in paragraph (c)(2)(ii) of this section, the notice provided 
pursuant to paragraph (c)(2)(i) of this section must provide the 
following information:
    (1) A summary of the changes made to terms required by Sec.  
226.6(b)(1) and (b)(2) and a summary of any increase in the required 
minimum periodic payment;
    (2) A statement that changes are being made to the account;
    (3) For accounts other than credit card accounts under an open-end 
(not home-secured) consumer credit plan subject to Sec.  
226.9(c)(2)(iv)(B), a statement indicating the consumer has the right 
to opt out of these changes, if applicable, and a reference to 
additional information describing the opt-out right provided in the 
notice, if applicable;
    (4) The date the changes will become effective;
    (5) If applicable, a statement that the consumer may find 
additional information about the summarized changes, and other changes 
to the account, in the notice;
    (6) If the creditor is changing a rate on the account, other than a 
penalty rate, a statement that if a penalty rate currently applies to 
the consumer's account, the new rate described in the notice will not 
apply to the consumer's account until the consumer's account balances 
are no longer subject to the penalty rate; and
    (7) If the change in terms being disclosed is an increase in an 
annual percentage rate, the balances to which the increased rate will 
be applied. If applicable, a statement identifying the balances to 
which the current rate will continue to apply as of the effective date 
of the change in terms.
    (B) Credit card accounts under an open-end (not home-secured) 
consumer credit plan. In addition to the information in paragraph 
(c)(2)(iv)(A) of this section, if a card issuer makes a significant 
change in account terms on a credit card account under an open-end (not 
home-secured) consumer credit

[[Page 54217]]

plan, the creditor must generally provide the following information on 
the notice provided pursuant to paragraph (c)(2)(i) of this section. 
This information is not required to be provided in the case of an 
increase in the required minimum periodic payment, an increase in an 
annual percentage rate applicable to a consumer's account, a change in 
the balance computation method applicable to consumer's account 
necessary to comply with Sec.  226.54, or when the change results from 
the creditor not receiving the consumer's required minimum periodic 
payment within 60 days after the due date for that payment:
    (1) A statement that the consumer has the right to reject the 
change or changes prior to the effective date of the changes, unless 
the consumer fails to make a required minimum periodic payment within 
60 days after the due date for that payment;
    (2) Instructions for rejecting the change or changes, and a toll-
free telephone number that the consumer may use to notify the creditor 
of the rejection; and
    (3) If applicable, a statement that if the consumer rejects the 
change or changes, the consumer's ability to use the account for 
further advances will be terminated or suspended.
    (C) Format requirements. (1) Tabular format. The summary of changes 
described in paragraph (c)(2)(iv)(A)(1) of this section must be in a 
tabular format (except for a summary of any increase in the required 
minimum periodic payment), with headings and format substantially 
similar to any of the account-opening tables found in G-17 in appendix 
G to this part. The table must disclose the changed term and 
information relevant to the change, if that relevant information is 
required by Sec.  226.6(b)(1) and (b)(2). The new terms shall be 
described in the same level of detail as required when disclosing the 
terms under Sec.  226.6(b)(2).
    (2) Notice included with periodic statement. If a notice required 
by paragraph (c)(2)(i) of this section is included on or with a 
periodic statement, the information described in paragraph 
(c)(2)(iv)(A)(1) of this section must be disclosed on the front of any 
page of the statement. The summary of changes described in paragraph 
(c)(1)(iv)(A)(1) of this section must immediately follow the 
information described in paragraph (c)(2)(iv)(A)(2) through 
(c)(2)(iv)(A)(7) and, if applicable, paragraph (c)(2)(iv)(B) of this 
section, and be substantially similar to the format shown in Sample G-
20 or G-21 in appendix G to this part.
    (3) Notice provided separately from periodic statement. If a notice 
required by paragraph (c)(2)(i) of this section is not included on or 
with a periodic statement, the information described in paragraph 
(c)(2)(iv)(A)(1) of this section must, at the creditor's option, be 
disclosed on the front of the first page of the notice or segregated on 
a separate page from other information given with the notice. The 
summary of changes required to be in a table pursuant to paragraph 
(c)(2)(iv)(A)(1) of this section may be on more than one page, and may 
use both the front and reverse sides, so long as the table begins on 
the front of the first page of the notice and there is a reference on 
the first page indicating that the table continues on the following 
page. The summary of changes described in paragraph (c)(2)(iv)(A)(1) of 
this section must immediately follow the information described in 
paragraph (c)(1)(iv)(A)(2) through (c)(1)(iv)(A)(7) and, if applicable, 
paragraph (c)(2)(iv)(B), of this section, substantially similar to the 
format shown in Sample G-20 or G-21 in appendix G to this part.
    (v) Notice not required. For open-end plans (other than home equity 
plans subject to the requirements of Sec.  226.5b) a creditor is not 
required to provide notice under this section:
    (A) When the change involves charges for documentary evidence; a 
reduction of any component of a finance or other charge; suspension of 
future credit privileges (except as provided in paragraph (c)(2)(vi) of 
this section) or termination of an account or plan; when the change 
results from an agreement involving a court proceeding; when the change 
is an extension of the grace period; or if the change is applicable 
only to a check or checks that access a credit card account and the 
changed terms are disclosed on or with the checks in accordance with 
Sec.  226.9(b)(3);
    (B) When the change is an increase in an annual percentage rate 
upon the expiration of a specified period of time, provided that:
    (1) Prior to commencement of that period, the creditor disclosed in 
writing to the consumer, in a clear and conspicuous manner, the length 
of the period and the annual percentage rate that would apply after 
expiration of the period;
    (2) The disclosure of the length of the period and the annual 
percentage rate that would apply after expiration of the period are set 
forth in close proximity and in equal prominence to the disclosure of 
the rate that applies during the specified period of time; and
    (3) The annual percentage rate that applies after that period does 
not exceed the rate disclosed pursuant to paragraph (c)(2)(v)(B)(1) of 
this paragraph or, if the rate disclosed pursuant to paragraph 
(c)(2)(v)(B)(1) of this section was a variable rate, the rate following 
any such increase is a variable rate determined by the same formula 
(index and margin) that was used to calculate the variable rate 
disclosed pursuant to paragraph (c)(2)(v)(B)(1);
    (C) When the change is an increase in a variable annual percentage 
rate in accordance with a credit card or other account agreement that 
provides for changes in the rate according to operation of an index 
that is not under the control of the creditor and is available to the 
general public; or
    (D) When the change is an increase in an annual percentage rate or 
a fee or charge required to be disclosed under Sec.  226.6(b)(2)(ii), 
(b)(2)(iii), or (b)(2)(xii) due to the completion of a workout or 
temporary hardship arrangement by the consumer or the consumer's 
failure to comply with the terms of such an arrangement, provided that:
    (1) The annual percentage rate or fee or charge applicable to a 
category of transactions following any such increase does not exceed 
the rate or fee or charge that applied to that category of transactions 
prior to commencement of the arrangement or, if the rate that applied 
to a category of transactions prior to the commencement of the workout 
or temporary hardship arrangement was a variable rate, the rate 
following any such increase is a variable rate determined by the same 
formula (index and margin) that applied to the category of transactions 
prior to commencement of the workout or temporary hardship arrangement; 
and
    (2) The creditor has provided the consumer, prior to the 
commencement of such arrangement, with a clear and conspicuous written 
disclosure of the terms of the arrangement (including any increases due 
to such completion or failure).
    (vi) Reduction of the credit limit. For open-end plans that are not 
subject to the requirements of Sec.  226.5b, if a creditor decreases 
the credit limit on an account, advance notice of the decrease must be 
provided before an over-the-limit fee or a penalty rate can be imposed 
solely as a result of the consumer exceeding the newly decreased credit 
limit. Notice shall be provided in writing or orally at least 45 days 
prior to imposing the over-the-limit fee or penalty rate and shall 
state that the credit limit on the account has been or will be 
decreased.
* * * * *
    (e) Disclosures upon renewal of credit or charge card. (1) Notice 
prior to

[[Page 54218]]

renewal. A card issuer that imposes any annual or other periodic fee to 
renew a credit or charge card account of the type subject to Sec.  
226.5a, including any fee based on account activity or inactivity or 
any card issuer that has changed or amended any term of a cardholder's 
account required to be disclosed under Sec.  226.6(b)(1) and (b)(2) 
that has not previously been disclosed to the consumer, shall mail or 
deliver written notice of the renewal to the cardholder. If the card 
issuer imposes any annual or other periodic fee for renewal, the notice 
shall be provided at least 30 days or one billing cycle, whichever is 
less, before the mailing or the delivery of the periodic statement on 
which any renewal fee is initially charged to the account. If the card 
issuer has changed or amended any term required to be disclosed under 
Sec.  226.(b)(1) and (b)(2) and such changed or amended term has not 
previously been disclosed to the consumer, the notice shall be provided 
at least 30 days prior to the scheduled renewal date of the consumer's 
credit or charge card. The notice shall contain the following 
information:
    (i) The disclosures contained in Sec.  226.5a(b)(1) through (b)(7) 
that would apply if the account were renewed; \20a\ and
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    \20a\ [Reserved]
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    (ii) How and when the cardholder may terminate credit availability 
under the account to avoid paying the renewal fee, if applicable.
    (2) Notification on periodic statements. The disclosures required 
by this paragraph may be made on or with a periodic statement. If any 
of the disclosures are provided on the back of a periodic statement, 
the card issuer shall include a reference to those disclosures on the 
front of the statement.
    (g) Increase in rates due to delinquency or default or as a 
penalty. (1) Increases subject to this section. For plans other than 
home-equity plans subject to the requirements of Sec.  226.5b, except 
as provided in paragraph (g)(4) of this section, a creditor must 
provide a written notice to each consumer who may be affected when:
    (i) A rate is increased due to the consumer's delinquency or 
default; or
    (ii) A rate is increased as a penalty for one or more events 
specified in the account agreement, such as making a late payment or 
obtaining an extension of credit that exceeds the credit limit.
    (2) Timing of written notice. Whenever any notice is required to be 
given pursuant to paragraph (g)(1) of this section, the creditor shall 
provide written notice of the increase in rates at least 45 days prior 
to the effective date of the increase. The notice must be provided 
after the occurrence of the events described in paragraphs (g)(1)(i) 
and (g)(1)(ii) of this section that trigger the imposition of the rate 
increase.
    (3)(i) Disclosure requirements for rate increases. (A) General. If 
a creditor is increasing the rate due to delinquency or default or as a 
penalty, the creditor must provide the following information on the 
notice sent pursuant to paragraph (g)(1) of this section:
    (1) A statement that the delinquency or default rate or penalty 
rate, as applicable, has been triggered;
    (2) The date on which the delinquency or default rate or penalty 
rate will apply;
    (3) The circumstances under which the delinquency or default rate 
or penalty rate, as applicable, will cease to apply to the consumer's 
account, or that the delinquency or default rate or penalty rate will 
remain in effect for a potentially indefinite time period;
    (4) A statement indicating to which balances the delinquency or 
default rate or penalty rate will be applied; and
    (5) If applicable, a description of any balances to which the 
current rate will continue to apply as of the effective date of the 
rate increase, unless a consumer fails to make a minimum periodic 
payment within 60 days from the due date for that payment.
    (B) Rate increases resulting from failure to make minimum periodic 
payment within 60 days from due date. For a credit card account under 
an open-end (not home-secured) consumer credit plan, if the rate 
increase required to be disclosed pursuant to paragraph (g)(1) of this 
section is an increase pursuant to Sec.  226.55(b)(4) based on the 
consumer's failure to make a minimum periodic payment within 60 days 
from the due date for that payment, the notice provided pursuant to 
paragraph (g)(1) of this section must also contain the following 
information:
    (1) A statement of the reason for the increase; and
    (2) That the increase will cease to apply if the creditor receives 
six consecutive required minimum periodic payments on or before the 
payment due date, beginning with the first payment due following the 
effective date of the increase.
    (ii) Format requirements. (A) If a notice required by paragraph 
(g)(1) of this section is included on or with a periodic statement, the 
information described in paragraph (g)(3)(i) of this section must be in 
the form of a table and provided on the front of any page of the 
periodic statement, above the notice described in paragraph (c)(2)(iv) 
of this section if that notice is provided on the same statement.
    (B) If a notice required by paragraph (g)(1) of this section is not 
included on or with a periodic statement, the information described in 
paragraph (g)(3)(i) of this section must be disclosed on the front of 
the first page of the notice. Only information related to the increase 
in the rate to a penalty rate may be included with the notice, except 
that this notice may be combined with a notice described in paragraph 
(c)(2)(iv) or (g)(4) of this section.
    (4) Exception for decrease in credit limit. A creditor is not 
required to provide, prior to increasing the rate for obtaining an 
extension of credit that exceeds the credit limit, a notice pursuant to 
paragraph (g)(1) of this section, provided that:
    (i) The creditor provides at least 45 days in advance of imposing 
the penalty rate a notice, in writing, that includes:
    (A) A statement that the credit limit on the account has been or 
will be decreased.
    (B) A statement indicating the date on which the penalty rate will 
apply, if the outstanding balance exceeds the credit limit as of that 
date;
    (C) A statement that the penalty rate will not be imposed on the 
date specified in paragraph (g)(4)(i)(B) of this section, if the 
outstanding balance does not exceed the credit limit as of that date;
    (D) The circumstances under which the penalty rate, if applied, 
will cease to apply to the account, or that the penalty rate, if 
applied, will remain in effect for a potentially indefinite time 
period;
    (E) A statement indicating to which balances the penalty rate may 
be applied; and
    (F) If applicable, a description of any balances to which the 
current rate will continue to apply as of the effective date of the 
rate increase, unless the consumer fails to make a minimum periodic 
payment within 60 days from the due date for that payment; and
    (ii) The creditor does not increase the rate applicable to the 
consumer's account to the penalty rate if the outstanding balance does 
not exceed the credit limit on the date set forth in the notice and 
described in paragraph 9(g)(4)(i)(B) of this section.
    (iii) (A) If a notice provided pursuant to paragraph (g)(4)(i) of 
this section is included on or with a periodic statement, the 
information described in paragraph (g)(4)(i) of this section must be in 
the form of a table and provided on the front of any page of the 
periodic statement; or
    (B) If a notice required by paragraph (g)(4)(i) of this section is 
not included

[[Page 54219]]

on or with a periodic statement, the information described in paragraph 
(g)(4)(i) of this section must be disclosed on the front of the first 
page of the notice. Only information related to the reduction in credit 
limit may be included with the notice, except that this notice may be 
combined with a notice described in paragraph (c)(2)(iv) or (g)(1) of 
this section.
    (h) Consumer rejection of certain significant changes in terms. (1) 
Right to reject. If paragraph (c)(2)(iv)(B) of this section requires 
disclosure of the consumer's right to reject a significant change to an 
account term, the consumer may reject that change by notifying the 
creditor of the rejection before the effective date of the change.
    (2) Effect of rejection. If a creditor is notified of a rejection 
of a significant change to an account term as provided in paragraph 
(h)(1) of this section, the creditor must not:
    (i) Apply the change to the account;
    (ii) Impose a fee or charge or treat the account as in default 
solely as a result of the rejection; or
    (iii) Require repayment of the balance on the account using a 
method that is less beneficial to the consumer than one of the methods 
listed in Sec.  226.55(c)(2).
    (3) Exception. Section 226.9(h) does not apply when the creditor 
has not received the consumer's required minimum periodic payment 
within 60 days after the due date for that payment.
    12. Section 226.10 is revised to read as follows:


Sec.  226.10  Payments.

    (a) General rule. A creditor shall credit a payment to the 
consumer's account as of the date of receipt, except when a delay in 
crediting does not result in a finance or other charge or except as 
provided in paragraph (b) of this section.
    (b) Specific requirements for payments. (1) General rule. A 
creditor may specify reasonable requirements for payments that enable 
most consumers to make conforming payments.
    (2) Examples of reasonable requirements for payments. Reasonable 
requirements for making payment may include:
    (i) Requiring that payments be accompanied by the account number or 
payment stub;
    (ii) Setting reasonable cut-off times for payments to be received 
by mail, by electronic means, by telephone, and in person (except as 
provided in paragraph (b)(3) of this section), provided that such cut-
off times shall be no earlier than 5 p.m. on the payment due date at 
the location specified by the creditor for the receipt of such 
payments;
    (iii) Specifying that only checks or money orders should be sent by 
mail;
    (iv) Specifying that payment is to be made in U.S. dollars; or
    (v) Specifying one particular address for receiving payments, such 
as a post office box.
    (3) In-person payments on credit card accounts. (i) General. A card 
issuer that is a financial institution shall not impose a cut-off time 
earlier than the close of business for payments on a credit card 
account under an open-end (not home-secured) consumer credit plan made 
in person at any branch or office of the card issuer at which such 
payments are accepted. Any such payment made in person at a branch or 
office of the card issuer earlier than the close of business of that 
branch or office shall be considered received on the date on which the 
consumer makes the payment.
    (ii) Financial institution. For purposes of paragraph (b)(3) of 
this section, ``financial institution'' shall mean a ``depository 
institution'' as defined in 12 U.S.C. 1813(c).
    (4) Nonconforming payments. If a creditor specifies, on or with the 
periodic statement, requirements for the consumer to follow in making 
payments, but accepts a payment that does not conform to the 
requirements, the creditor shall credit the payment within five days of 
receipt.
    (c) Adjustment of account. If a creditor fails to credit a payment, 
as required by paragraphs (a) or (b) of this section, in time to avoid 
the imposition of finance or other charges, the creditor shall adjust 
the consumer's account so that the charges imposed are credited to the 
consumer's account during the next billing cycle.
    (d) Crediting of payments when creditor does not receive or accept 
payments on due date. If the due date for payments is a day on which 
the creditor does not receive or accept payments by mail, the creditor 
may generally not treat a payment received by any method the next 
business day as late for any purpose. However, if the 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.
    (e) Limitations on fees related to method of payment. For credit 
card accounts under an open-end (not home-secured) consumer credit 
plan, a creditor may not impose a separate fee to allow consumers to 
make a payment by any method, such as mail, electronic, or telephone 
payments, unless such payment method involves an expedited service by a 
customer service representative of the creditor.
    (f) Changes by card issuer. If a card issuer makes a material 
change in the address for receiving payment or procedures for handling 
cardholder payments, and such change causes a material delay in the 
crediting of a payment to the consumer's account during the 60-day 
period following the date on which such change took effect, the card 
issuer may not impose any late fee or finance charge for a late payment 
on the credit card account.
    13. Section 226.11 is revised to read as follows:


Sec.  226.11  Treatment of credit balances; account termination.

    (a) Credit balances. When a credit balance in excess of $1 is 
created on a credit account (through transmittal of funds to a creditor 
in excess of the total balance due on an account, through rebates of 
unearned finance charges or insurance premiums, or through amounts 
otherwise owed to or held for the benefit of the consumer), the 
creditor shall--
    (1) Credit the amount of the credit balance to the consumer's 
account;
    (2) Refund any part of the remaining credit balance within seven 
business days from receipt of a written request from the consumer;
    (3) Make a good faith effort to refund to the consumer by cash, 
check, or money order, or credit to a deposit account of the consumer, 
any part of the credit balance remaining in the account for more than 
six months. No further action is required if the consumer's current 
location is not known to the creditor and cannot be traced through the 
consumer's last known address or telephone number.
    (b) Account termination. (1) A creditor shall not terminate an 
account prior to its expiration date solely because the consumer does 
not incur a finance charge.
    (2) Nothing in paragraph (b)(1) of this section prohibits a 
creditor from terminating an account that is inactive for three or more 
consecutive months. An account is inactive for purposes of this 
paragraph if no credit has been extended (such as by purchase, cash 
advance or balance transfer) and if the account has no outstanding 
balance.
    (c) Timely settlement of estate debts. (1) General rule. For credit 
card accounts under an open-end (not home-secured) consumer credit 
plan, creditors must adopt reasonable procedures designed to ensure 
that an administrator or executor of an estate of a deceased

[[Page 54220]]

accountholder can determine the amount of and pay any balance on the 
account in a timely manner.
    (2) Fees and charges. (i) Limitation on fees and charges. Except as 
provided in paragraph (c)(2)(ii) of this section, upon receiving a 
request by the administrator or executor of an estate for the amount of 
the balance on a deceased consumer's account, a creditor may not impose 
fees or charges, such as a late fee or finance charge, on the account 
on or after the date of receiving the request.
    (ii) Application to joint accounts. For joint accounts, a creditor 
may impose fees and charges on an account of a deceased consumer if a 
joint accountholder remains on the account.
    (3) Timely statement of balance. (i) Requirement. Upon request by 
the administrator or executor of an estate, a creditor must provide the 
administrator or executor of an estate with the amount of the balance 
on a deceased consumer's account in a timely manner.
    (ii) Safe harbor. For the purposes of paragraph (c)(3)(i) of this 
section, providing the amount of the balance on the account within 30 
days of receiving the request is deemed to be timely.
    14. Section 226.12 is revised to read as follows:


Sec.  226.12  Special credit card provisions.

    (a) Issuance of credit cards. Regardless of the purpose for which a 
credit card is to be used, including business, commercial, or 
agricultural use, no credit card shall be issued to any person except--
    (1) In response to an oral or written request or application for 
the card; or
    (2) As a renewal of, or substitute for, an accepted credit 
card.\21\
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    \21\ [Reserved]
---------------------------------------------------------------------------

    (b) Liability of cardholder for unauthorized use. (1)(i) Definition 
of unauthorized use. For purposes of this section, the term 
``unauthorized use'' means the use of a credit card by a person, other 
than the cardholder, who does not have actual, implied, or apparent 
authority for such use, and from which the cardholder receives no 
benefit.
    (ii) Limitation on amount. The liability of a cardholder for 
unauthorized use \22\ of a credit card shall not exceed the lesser of 
$50 or the amount of money, property, labor, or services obtained by 
the unauthorized use before notification to the card issuer under 
paragraph (b)(3) of this section.
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    \22\ [Reserved]
---------------------------------------------------------------------------

    (2) Conditions of liability. A cardholder shall be liable for 
unauthorized use of a credit card only if:
    (i) The credit card is an accepted credit card;
    (ii) The card issuer has provided adequate notice \23\ of the 
cardholder's maximum potential liability and of means by which the card 
issuer may be notified of loss or theft of the card. The notice shall 
state that the cardholder's liability shall not exceed $50 (or any 
lesser amount) and that the cardholder may give oral or written 
notification, and shall describe a means of notification (for example, 
a telephone number, an address, or both); and
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    \23\ [Reserved]
---------------------------------------------------------------------------

    (iii) The card issuer has provided a means to identify the 
cardholder on the account or the authorized user of the card.
    (3) Notification to card issuer. Notification to a card issuer is 
given when steps have been taken as may be reasonably required in the 
ordinary course of business to provide the card issuer with the 
pertinent information about the loss, theft, or possible unauthorized 
use of a credit card, regardless of whether any particular officer, 
employee, or agent of the card issuer does, in fact, receive the 
information. Notification may be given, at the option of the person 
giving it, in person, by telephone, or in writing. Notification in 
writing is considered given at the time of receipt or, whether or not 
received, at the expiration of the time ordinarily required for 
transmission, whichever is earlier.
    (4) Effect of other applicable law or agreement. If State law or an 
agreement between a cardholder and the card issuer imposes lesser 
liability than that provided in this paragraph, the lesser liability 
shall govern.
    (5) Business use of credit cards. If 10 or more credit cards are 
issued by one card issuer for use by the employees of an organization, 
this section does not prohibit the card issuer and the organization 
from agreeing to liability for unauthorized use without regard to this 
section. However, liability for unauthorized use may be imposed on an 
employee of the organization, by either the card issuer or the 
organization, only in accordance with this section.
    (c) Right of cardholder to assert claims or defenses against card 
issuer.\24\ (1) General rule. When a person who honors a credit card 
fails to resolve satisfactorily a dispute as to property or services 
purchased with the credit card in a consumer credit transaction, the 
cardholder may assert against the card issuer all claims (other than 
tort claims) and defenses arising out of the transaction and relating 
to the failure to resolve the dispute. The cardholder may withhold 
payment up to the amount of credit outstanding for the property or 
services that gave rise to the dispute and any finance or other charges 
imposed on that amount.\25\
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    \24\ [Reserved]
    \25\ [Reserved]
---------------------------------------------------------------------------

    (2) Adverse credit reports prohibited. If, in accordance with 
paragraph (c)(1) of this section, the cardholder withholds payment of 
the amount of credit outstanding for the disputed transaction, the card 
issuer shall not report that amount as delinquent until the dispute is 
settled or judgment is rendered.
    (3) Limitations. (i) General. The rights stated in paragraphs 
(c)(1) and (c)(2) of this section apply only if:
    (A) The cardholder has made a good faith attempt to resolve the 
dispute with the person honoring the credit card; and
    (B) The amount of credit extended to obtain the property or 
services that result in the assertion of the claim or defense by the 
cardholder exceeds $50, and the disputed transaction occurred in the 
same State as the cardholder's current designated address or, if not 
within the same State, within 100 miles from that address.\26\
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    \26\ [Reserved]
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    (ii) Exclusion. The limitations stated in paragraph (c)(3)(i)(B) of 
this section shall not apply when the person honoring the credit card:
    (A) Is the same person as the card issuer;
    (B) Is controlled by the card issuer directly or indirectly;
    (C) Is under the direct or indirect control of a third person that 
also directly or indirectly controls the card issuer;
    (D) Controls the card issuer directly or indirectly;
    (E) Is a franchised dealer in the card issuer's products or 
services; or
    (F) Has obtained the order for the disputed transaction through a 
mail solicitation made or participated in by the card issuer.
    (d) Offsets by card issuer prohibited. (1) A card issuer may not 
take any action, either before or after termination of credit card 
privileges, to offset a cardholder's indebtedness arising from a 
consumer credit transaction under the relevant credit card plan against 
funds of the cardholder held on deposit with the card issuer.
    (2) This paragraph does not alter or affect the right of a card 
issuer acting under State or Federal law to do any of the following 
with regard to funds of a cardholder held on deposit with the card 
issuer if the same procedure is constitutionally available to creditors

[[Page 54221]]

generally: obtain or enforce a consensual security interest in the 
funds; attach or otherwise levy upon the funds; or obtain or enforce a 
court order relating to the funds.
    (3) This paragraph does not prohibit a plan, if authorized in 
writing by the cardholder, under which the card issuer may periodically 
deduct all or part of the cardholder's credit card debt from a deposit 
account held with the card issuer (subject to the limitations in Sec.  
226.13(d)(1)).
    (e) Prompt notification of returns and crediting of refunds. (1) 
When a creditor other than the card issuer accepts the return of 
property or forgives a debt for services that is to be reflected as a 
credit to the consumer's credit card account, that creditor shall, 
within 7 business days from accepting the return or forgiving the debt, 
transmit a credit statement to the card issuer through the card 
issuer's normal channels for credit statements.
    (2) The card issuer shall, within 3 business days from receipt of a 
credit statement, credit the consumer's account with the amount of the 
refund.
    (3) If a creditor other than a card issuer routinely gives cash 
refunds to consumers paying in cash, the creditor shall also give 
credit or cash refunds to consumers using credit cards, unless it 
discloses at the time the transaction is consummated that credit or 
cash refunds for returns are not given. This section does not require 
refunds for returns nor does it prohibit refunds in kind.
    (f) Discounts; tie-in arrangements. No card issuer may, by contract 
or otherwise:
    (1) Prohibit any person who honors a credit card from offering a 
discount to a consumer to induce the consumer to pay by cash, check, or 
similar means rather than by use of a credit card or its underlying 
account for the purchase of property or services; or
    (2) Require any person who honors the card issuer's credit card to 
open or maintain any account or obtain any other service not essential 
to the operation of the credit card plan from the card issuer or any 
other person, as a condition of participation in a credit card plan. If 
maintenance of an account for clearing purposes is determined to be 
essential to the operation of the credit card plan, it may be required 
only if no service charges or minimum balance requirements are imposed.
    (g) Relation to Electronic Fund Transfer Act and Regulation E. For 
guidance on whether Regulation Z (12 CFR part 226) or Regulation E (12 
CFR part 205) applies in instances involving both credit and electronic 
fund transfer aspects, refer to Regulation E, 12 CFR 205.12(a) 
regarding issuance and liability for unauthorized use. On matters other 
than issuance and liability, this section applies to the credit aspects 
of combined credit/electronic fund transfer transactions, as 
applicable.
    15. Section 226.13 is revised to read as follows:


Sec.  226.13  Billing error resolution.\27\
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    \27\ [Reserved]
---------------------------------------------------------------------------

    (a) Definition of billing error. For purposes of this section, the 
term billing error means:
    (1) A reflection on or with a periodic statement of an extension of 
credit that is not made to the consumer or to a person who has actual, 
implied, or apparent authority to use the consumer's credit card or 
open-end credit plan.
    (2) A reflection on or with a periodic statement of an extension of 
credit that is not identified in accordance with the requirements of 
Sec. Sec.  226.7(a)(2) or (b)(2), as applicable, and 226.8.
    (3) A reflection on or with a periodic statement of an extension of 
credit for property or services not accepted by the consumer or the 
consumer's designee, or not delivered to the consumer or the consumer's 
designee as agreed.
    (4) A reflection on a periodic statement of the creditor's failure 
to credit properly a payment or other credit issued to the consumer's 
account.
    (5) A reflection on a periodic statement of a computational or 
similar error of an accounting nature that is made by the creditor.
    (6) A reflection on a periodic statement of an extension of credit 
for which the consumer requests additional clarification, including 
documentary evidence.
    (7) The creditor's failure to mail or deliver a periodic statement 
to the consumer's last known address if that address was received by 
the creditor, in writing, at least 20 days before the end of the 
billing cycle for which the statement was required.
    (b) Billing error notice.\28\ A billing error notice is a written 
notice \29\ from a consumer that:
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    \28\ [Reserved]
    \29\ [Reserved]
---------------------------------------------------------------------------

    (1) Is received by a creditor at the address disclosed under Sec.  
226.7(a)(9) or (b)(9), as applicable, no later than 60 days after the 
creditor transmitted the first periodic statement that reflects the 
alleged billing error;
    (2) Enables the creditor to identify the consumer's name and 
account number; and
    (3) To the extent possible, indicates the consumer's belief and the 
reasons for the belief that a billing error exists, and the type, date, 
and amount of the error.
    (c) Time for resolution; general procedures.
    (1) The creditor shall mail or deliver written acknowledgment to 
the consumer within 30 days of receiving a billing error notice, unless 
the creditor has complied with the appropriate resolution procedures of 
paragraphs (e) and (f) of this section, as applicable, within the 30-
day period; and
    (2) The creditor shall comply with the appropriate resolution 
procedures of paragraphs (e) and (f) of this section, as applicable, 
within 2 complete billing cycles (but in no event later than 90 days) 
after receiving a billing error notice.
    (d) Rules pending resolution. Until a billing error is resolved 
under paragraph (e) or (f) of this section, the following rules apply:
    (1) Consumer's right to withhold disputed amount; collection action 
prohibited. The consumer need not pay (and the creditor may not try to 
collect) any portion of any required payment that the consumer believes 
is related to the disputed amount (including related finance or other 
charges).\30\ If the cardholder has enrolled in an automatic payment 
plan offered by the card issuer and has agreed to pay the credit card 
indebtedness by periodic deductions from the cardholder's deposit 
account, the card issuer shall not deduct any part of the disputed 
amount or related finance or other charges if a billing error notice is 
received any time up to 3 business days before the scheduled payment 
date.
---------------------------------------------------------------------------

    \30\ [Reserved]
---------------------------------------------------------------------------

    (2) Adverse credit reports prohibited. The creditor or its agent 
shall not (directly or indirectly) make or threaten to make an adverse 
report to any person about the consumer's credit standing, or report 
that an amount or account is delinquent, because the consumer failed to 
pay the disputed amount or related finance or other charges.
    (3) Acceleration of debt and restriction of account prohibited. A 
creditor shall not accelerate any part of the consumer's indebtedness 
or restrict or close a consumer's account solely because the consumer 
has exercised in good faith rights provided by this section. A creditor 
may be subject to the forfeiture penalty under section 161(e) of the 
act for failure to comply with any of the requirements of this section.
    (4) Permitted creditor actions. A creditor is not prohibited from 
taking

[[Page 54222]]

action to collect any undisputed portion of the item or bill; from 
deducting any disputed amount and related finance or other charges from 
the consumer's credit limit on the account; or from reflecting a 
disputed amount and related finance or other charges on a periodic 
statement, provided that the creditor indicates on or with the periodic 
statement that payment of any disputed amount and related finance or 
other charges is not required pending the creditor's compliance with 
this section.
    (e) Procedures if billing error occurred as asserted. If a creditor 
determines that a billing error occurred as asserted, it shall within 
the time limits in paragraph (c)(2) of this section:
    (1) Correct the billing error and credit the consumer's account 
with any disputed amount and related finance or other charges, as 
applicable; and
    (2) Mail or deliver a correction notice to the consumer.
    (f) Procedures if different billing error or no billing error 
occurred. If, after conducting a reasonable investigation,\31\ a 
creditor determines that no billing error occurred or that a different 
billing error occurred from that asserted, the creditor shall within 
the time limits in paragraph (c)(2) of this section:
---------------------------------------------------------------------------

    \31\ [Reserved]
---------------------------------------------------------------------------

    (1) Mail or deliver to the consumer an explanation that sets forth 
the reasons for the creditor's belief that the billing error alleged by 
the consumer is incorrect in whole or in part;
    (2) Furnish copies of documentary evidence of the consumer's 
indebtedness, if the consumer so requests; and
    (3) If a different billing error occurred, correct the billing 
error and credit the consumer's account with any disputed amount and 
related finance or other charges, as applicable.
    (g) Creditor's rights and duties after resolution. If a creditor, 
after complying with all of the requirements of this section, 
determines that a consumer owes all or part of the disputed amount and 
related finance or other charges, the creditor:
    (1) Shall promptly notify the consumer in writing of the time when 
payment is due and the portion of the disputed amount and related 
finance or other charges that the consumer still owes;
    (2) Shall allow any time period disclosed under Sec.  226.6(a)(1) 
or (b)(2)(v), as applicable, and Sec.  226.7(a)(8) or (b)(8), as 
applicable, during which the consumer can pay the amount due under 
paragraph (g)(1) of this section without incurring additional finance 
or other charges;
    (3) May report an account or amount as delinquent because the 
amount due under paragraph (g)(1) of this section remains unpaid after 
the creditor has allowed any time period disclosed under Sec.  
226.6(a)(1) or (b)(2)(v), as applicable, and Sec.  226.7(a)(8) or 
(b)(8), as applicable or 10 days (whichever is longer) during which the 
consumer can pay the amount; but
    (4) May not report that an amount or account is delinquent because 
the amount due under paragraph (g)(1) of the section remains unpaid, if 
the creditor receives (within the time allowed for payment in paragraph 
(g)(3) of this section) further written notice from the consumer that 
any portion of the billing error is still in dispute, unless the 
creditor also:
    (i) Promptly reports that the amount or account is in dispute;
    (ii) Mails or delivers to the consumer (at the same time the report 
is made) a written notice of the name and address of each person to 
whom the creditor makes a report; and
    (iii) Promptly reports any subsequent resolution of the reported 
delinquency to all persons to whom the creditor has made a report.
    (h) Reassertion of billing error. A creditor that has fully 
complied with the requirements of this section has no further 
responsibilities under this section (other than as provided in 
paragraph (g)(4) of this section) if a consumer reasserts substantially 
the same billing error.
    (i) Relation to Electronic Fund Transfer Act and Regulation E. If 
an extension of credit is incident to an electronic fund transfer, 
under an agreement between a consumer and a financial institution to 
extend credit when the consumer's account is overdrawn or to maintain a 
specified minimum balance in the consumer's account, the creditor shall 
comply with the requirements of Regulation E, 12 CFR 205.11 governing 
error resolution rather than those of paragraphs (a), (b), (c), (e), 
(f), and (h) of this section.
    16. Section 226.14 is revised to read as follows:


Sec.  226.14  Determination of annual percentage rate.

    (a) General rule. The annual percentage rate is a measure of the 
cost of credit, expressed as a yearly rate. An annual percentage rate 
shall be considered accurate if it is not more than [frac18]th of 1 
percentage point above or below the annual percentage rate determined 
in accordance with this section.\31a\ An error in disclosure of the 
annual percentage rate or finance charge shall not, in itself, be 
considered a violation of this regulation if:
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    \31a\ [Reserved]
---------------------------------------------------------------------------

    (1) The error resulted from a corresponding error in a calculation 
tool used in good faith by the creditor; and
    (2) Upon discovery of the error, the creditor promptly discontinues 
use of that calculation tool for disclosure purposes, and notifies the 
Board in writing of the error in the calculation tool.
    (b) Annual percentage rate--in general. Where one or more periodic 
rates may be used to compute the finance charge, the annual percentage 
rate(s) to be disclosed for purposes of Sec. Sec.  226.5a, 226.5b, 
226.6, 226.7(a)(4) or (b)(4), 226.9, 226.15, 226.16, and 226.26 shall 
be computed by multiplying each periodic rate by the number of periods 
in a year.
    (c) Optional effective annual percentage rate for periodic 
statements for creditors offering open-end plans subject to the 
requirements of Sec.  226.5b. A creditor offering an open-end plan 
subject to the requirements of Sec.  226.5b need not disclose an 
effective annual percentage rate. Such a creditor may, at its option, 
disclose an effective annual percentage rate(s) pursuant to Sec.  
226.7(a)(7) and compute the effective annual percentage rate as 
follows:
    (1) Solely periodic rates imposed. If the finance charge is 
determined solely by applying one or more periodic rates, at the 
creditor's option, either:
    (i) By multiplying each periodic rate by the number of periods in a 
year; or
    (ii) By dividing the total finance charge for the billing cycle by 
the sum of the balances to which the periodic rates were applied and 
multiplying the quotient (expressed as a percentage) by the number of 
billing cycles in a year.
    (2) Minimum or fixed charge, but not transaction charge, imposed. 
If the finance charge imposed during the billing cycle is or includes a 
minimum, fixed, or other charge not due to the application of a 
periodic rate, other than a charge with respect to any specific 
transaction during the billing cycle, by dividing the total finance 
charge for the billing cycle by the amount of the balance(s) to which 
it is applicable \32\ and multiplying the quotient (expressed as a 
percentage) by the number of billing cycles in a year.\33\ If there is 
no balance to which the finance charge is applicable, an annual 
percentage rate cannot be determined under this section. Where the 
finance charge imposed during the billing cycle is or includes a loan 
fee, points, or similar

[[Page 54223]]

charge that relates to opening, renewing, or continuing an account, the 
amount of such charge shall not be included in the calculation of the 
annual percentage rate.
---------------------------------------------------------------------------

    \32\ [Reserved]
    \33\ [Reserved]
---------------------------------------------------------------------------

    (3) Transaction charge imposed. If the finance charge imposed 
during the billing cycle is or includes a charge relating to a specific 
transaction during the billing cycle (even if the total finance charge 
also includes any other minimum, fixed, or other charge not due to the 
application of a periodic rate), by dividing the total finance charge 
imposed during the billing cycle by the total of all balances and other 
amounts on which a finance charge was imposed during the billing cycle 
without duplication, and multiplying the quotient (expressed as a 
percentage) by the number of billing cycles in a year,\34\ except that 
the annual percentage rate shall not be less than the largest rate 
determined by multiplying each periodic rate imposed during the billing 
cycle by the number of periods in a year.\35\ Where the finance charge 
imposed during the billing cycle is or includes a loan fee, points, or 
similar charge that relates to the opening, renewing, or continuing an 
account, the amount of such charge shall not be included in the 
calculation of the annual percentage rate. See appendix F to this part 
regarding determination of the denominator of the fraction under this 
paragraph.
---------------------------------------------------------------------------

    \34\ [Reserved]
    \35\ [Reserved]
---------------------------------------------------------------------------

    (4) If the finance charge imposed during the billing cycle is or 
includes a minimum, fixed, or other charge not due to the application 
of a periodic rate and the total finance charge imposed during the 
billing cycle does not exceed 50 cents for a monthly or longer billing 
cycle, or the pro rata part of 50 cents for a billing cycle shorter 
than monthly, at the creditor's option, by multiplying each applicable 
periodic rate by the number of periods in a year, notwithstanding the 
provisions of paragraphs (c)(2) and (c)(3) of this section.
    (d) Calculations where daily periodic rate applied. If the 
provisions of paragraph (c)(1)(ii) or (c)(2) of this section apply and 
all or a portion of the finance charge is determined by the application 
of one or more daily periodic rates, the annual percentage rate may be 
determined either:
    (1) By dividing the total finance charge by the average of the 
daily balances and multiplying the quotient by the number of billing 
cycles in a year; or
    (2) By dividing the total finance charge by the sum of the daily 
balances and multiplying the quotient by 365.
    17. Section 226.16 is revised to read as follows:


Sec.  226.16  Advertising.

    (a) Actually available terms. If an advertisement for credit states 
specific credit terms, it shall state only those terms that actually 
are or will be arranged or offered by the creditor.
    (b) Advertisement of terms that require additional disclosures. (1) 
Any term required to be disclosed under Sec.  226.6(b)(3) set forth 
affirmatively or negatively in an advertisement for an open-end (not 
home-secured) credit plan triggers additional disclosures under this 
section. Any term required to be disclosed under Sec.  226.6(a)(1) or 
(a)(2) set forth affirmatively or negatively in an advertisement for a 
home-equity plan subject to the requirements of Sec.  226.5b triggers 
additional disclosures under this section. If any of the terms that 
trigger additional disclosures under this paragraph is set forth in an 
advertisement, the advertisement shall also clearly and conspicuously 
set forth the following: \36d\
---------------------------------------------------------------------------

    \36d\ [Reserved]
---------------------------------------------------------------------------

    (i) Any minimum, fixed, transaction, activity or similar charge 
that is a finance charge under Sec.  226.4 that could be imposed.
    (ii) Any periodic rate that may be applied expressed as an annual 
percentage rate as determined under Sec.  226.14(b). If the plan 
provides for a variable periodic rate, that fact shall be disclosed.
    (iii) Any membership or participation fee that could be imposed.
    (2) If an advertisement for credit to finance the purchase of goods 
or services specified in the advertisement states a periodic payment 
amount, the advertisement shall also state the total of payments and 
the time period to repay the obligation, assuming that the consumer 
pays only the periodic payment amount advertised. The disclosure of the 
total of payments and the time period to repay the obligation must be 
equally prominent to the statement of the periodic payment amount.
    (c) Catalogs or other multiple-page advertisements; electronic 
advertisements. (1) If a catalog or other multiple-page advertisement, 
or an electronic advertisement (such as an advertisement appearing on 
an Internet Web site), gives information in a table or schedule in 
sufficient detail to permit determination of the disclosures required 
by paragraph (b) of this section, it shall be considered a single 
advertisement if:
    (i) The table or schedule is clearly and conspicuously set forth; 
and
    (ii) Any statement of terms set forth in Sec.  226.6 appearing 
anywhere else in the catalog or advertisement clearly refers to the 
page or location where the table or schedule begins.
    (2) A catalog or other multiple-page advertisement or an electronic 
advertisement (such as an advertisement appearing on an Internet Web 
site) complies with this paragraph if the table or schedule of terms 
includes all appropriate disclosures for a representative scale of 
amounts up to the level of the more commonly sold higher-priced 
property or services offered.
    (d) Additional requirements for home-equity plans. (1) 
Advertisement of terms that require additional disclosures. If any of 
the terms required to be disclosed under Sec.  226.6(a)(1) or (a)(2) or 
the payment terms of the plan are set forth, affirmatively or 
negatively, in an advertisement for a home-equity plan subject to the 
requirements of Sec.  226.5b, the advertisement also shall clearly and 
conspicuously set forth the following:
    (i) Any loan fee that is a percentage of the credit limit under the 
plan and an estimate of any other fees imposed for opening the plan, 
stated as a single dollar amount or a reasonable range.
    (ii) Any periodic rate used to compute the finance charge, 
expressed as an annual percentage rate as determined under Sec.  
226.14(b).
    (iii) The maximum annual percentage rate that may be imposed in a 
variable-rate plan.
    (2) Discounted and premium rates. If an advertisement states an 
initial annual percentage rate that is not based on the index and 
margin used to make later rate adjustments in a variable-rate plan, the 
advertisement also shall state with equal prominence and in close 
proximity to the initial rate:
    (i) The period of time such initial rate will be in effect; and
    (ii) A reasonably current annual percentage rate that would have 
been in effect using the index and margin.
    (3) Balloon payment. If an advertisement contains a statement of 
any minimum periodic payment and a balloon payment may result if only 
the minimum periodic payments are made, even if such a payment is 
uncertain or unlikely, the advertisement also shall state with equal 
prominence and in close proximity to the minimum periodic payment 
statement that a balloon payment may result, if

[[Page 54224]]

applicable.\36e\ A balloon payment results if paying the minimum 
periodic payments does not fully amortize the outstanding balance by a 
specified date or time, and the consumer is required to repay the 
entire outstanding balance at such time. If a balloon payment will 
occur when the consumer makes only the minimum payments required under 
the plan, an advertisement for such a program which contains any 
statement of any minimum periodic payment shall also state with equal 
prominence and in close proximity to the minimum periodic payment 
statement:
---------------------------------------------------------------------------

    \36e\ [Reserved.]
---------------------------------------------------------------------------

    (i) That a balloon payment will result; and
    (ii) The amount and timing of the balloon payment that will result 
if the consumer makes only the minimum payments for the maximum period 
of time that the consumer is permitted to make such payments.
    (4) Tax implications. An advertisement that states that any 
interest expense incurred under the home-equity plan is or may be tax 
deductible may not be misleading in this regard. If an advertisement 
distributed in paper form or through the Internet (rather than by radio 
or television) is for a home-equity plan secured by the consumer's 
principal dwelling, and the advertisement states that the advertised 
extension of credit may exceed the fair market value of the dwelling, 
the advertisement shall clearly and conspicuously state that:
    (i) The interest on the portion of the credit extension that is 
greater than the fair market value of the dwelling is not tax 
deductible for Federal income tax purposes; and
    (ii) The consumer should consult a tax adviser for further 
information regarding the deductibility of interest and charges.
    (5) Misleading terms. An advertisement may not refer to a home-
equity plan as ``free money'' or contain a similarly misleading term.
    (6) Promotional rates and payments. (i) Definitions. The following 
definitions apply for purposes of paragraph (d)(6) of this section:
    (A) Promotional rate. The term ``promotional rate'' means, in a 
variable-rate plan, any annual percentage rate that is not based on the 
index and margin that will be used to make rate adjustments under the 
plan, if that rate is less than a reasonably current annual percentage 
rate that would be in effect under the index and margin that will be 
used to make rate adjustments under the plan.
    (B) Promotional payment. The term ``promotional payment'' means:
    (1) For a variable-rate plan, any minimum payment applicable for a 
promotional period that:
    (i) Is not derived by applying the index and margin to the 
outstanding balance when such index and margin will be used to 
determine other minimum payments under the plan; and
    (ii) Is less than other minimum payments under the plan derived by 
applying a reasonably current index and margin that will be used to 
determine the amount of such payments, given an assumed balance.
    (2) For a plan other than a variable-rate plan, any minimum payment 
applicable for a promotional period if that payment is less than other 
payments required under the plan given an assumed balance.
    (C) Promotional period. A ``promotional period'' means a period of 
time, less than the full term of the loan, that the promotional rate or 
promotional payment may be applicable.
    (ii) Stating the promotional period and post-promotional rate or 
payments. If any annual percentage rate that may be applied to a plan 
is a promotional rate, or if any payment applicable to a plan is a 
promotional payment, the following must be disclosed in any 
advertisement, other than television or radio advertisements, in a 
clear and conspicuous manner with equal prominence and in close 
proximity to each listing of the promotional rate or payment:
    (A) The period of time during which the promotional rate or 
promotional payment will apply;
    (B) In the case of a promotional rate, any annual percentage rate 
that will apply under the plan. If such rate is variable, the annual 
percentage rate must be disclosed in accordance with the accuracy 
standards in Sec. Sec.  226.5b or 226.16(b)(1)(ii) as applicable; and
    (C) In the case of a promotional payment, the amounts and time 
periods of any payments that will apply under the plan. In variable-
rate transactions, payments that will be determined based on 
application of an index and margin shall be disclosed based on a 
reasonably current index and margin.
    (iii) Envelope excluded. The requirements in paragraph (d)(6)(ii) 
of this section do not apply to an envelope in which an application or 
solicitation is mailed, or to a banner advertisement or pop-up 
advertisement linked to an application or solicitation provided 
electronically.
    (e) Alternative disclosures--television or radio advertisements. An 
advertisement made through television or radio stating any of the terms 
requiring additional disclosures under paragraphs (b)(1) or (d)(1) of 
this section may alternatively comply with paragraphs (b)(1) or (d)(1) 
of this section by stating the information required by paragraphs 
(b)(1)(ii) or (d)(1)(ii) of this section, as applicable, and listing a 
toll-free telephone number, or any telephone number that allows a 
consumer to reverse the phone charges when calling for information, 
along with a reference that such number may be used by consumers to 
obtain the additional cost information.
    (f) Misleading terms. An advertisement may not refer to an annual 
percentage rate as ``fixed,'' or use a similar term, unless the 
advertisement also specifies a time period that the rate will be fixed 
and the rate will not increase during that period, or if no such time 
period is provided, the rate will not increase while the plan is open.
    (g) Promotional Rates. (1) Scope. The requirements of this 
paragraph apply to any advertisement of an open-end (not home-secured) 
plan, including promotional materials accompanying applications or 
solicitations subject to Sec.  226.5a(c) or accompanying applications 
or solicitations subject to Sec.  226.5a(e).
    (2) Definitions. (i) Promotional rate means any annual percentage 
rate applicable to one or more balances or transactions on an open-end 
(not home-secured) plan for a specified period of time that is lower 
than the annual percentage rate that will be in effect at the end of 
that period on such balances or transactions.
    (ii) Introductory rate means a promotional rate offered in 
connection with the opening of an account.
    (iii) Promotional period means the maximum time period for which 
the promotional rate may be applicable.
    (3) Stating the term ``introductory''. If any annual percentage 
rate that may be applied to the account is an introductory rate, the 
term introductory or intro must be in immediate proximity to each 
listing of the introductory rate in a written or electronic 
advertisement.
    (4) Stating the promotional period and post-promotional rate. If 
any annual percentage rate that may be applied to the account is a 
promotional rate under paragraph (g)(2)(i) of this section, the 
information in paragraphs (g)(4)(i) and (g)(4)(ii) of this section must 
be stated in a clear and conspicuous manner in the advertisement. If 
the rate is stated in a written or electronic advertisement, the 
information in paragraphs (g)(4)(i) and (g)(4)(ii) of this section must 
also be stated in a prominent location closely

[[Page 54225]]

proximate to the first listing of the promotional rate.
    (i) When the promotional rate will end; and
    (ii) The annual percentage rate that will apply after the end of 
the promotional period. If such rate is variable, the annual percentage 
rate must comply with the accuracy standards in Sec. Sec.  
226.5a(c)(2), 226.5a(d)(3), 226.5a(e)(4), or 226.16(b)(1)(ii), as 
applicable. If such rate cannot be determined at the time disclosures 
are given because the rate depends at least in part on a later 
determination of the consumer's creditworthiness, the advertisement 
must disclose the specific rates or the range of rates that might 
apply.
    (5) Envelope excluded. The requirements in paragraph (g)(4) of this 
section do not apply to an envelope or other enclosure in which an 
application or solicitation is mailed, or to a banner advertisement or 
pop-up advertisement, linked to an application or solicitation provided 
electronically.
    (h) Deferred interest or similar offers. (1) Scope. The 
requirements of this paragraph apply to any advertisement of an open-
end credit plan not subject to Sec.  226.5b, including promotional 
materials accompanying applications or solicitations subject to Sec.  
226.5a(c) or accompanying applications or solicitations subject to 
Sec.  226.5a(e).
    (2) Definitions. ``Deferred interest'' means finance charges 
accrued on balances or transactions that a consumer is not obligated to 
pay or that will be waived or refunded to a consumer if those balances 
or transactions are paid in full by a specified date. The maximum 
period from the date the consumer becomes obligated for the balance or 
transaction until the specified date by which the consumer must pay the 
balance or transaction in full in order to avoid finance charges, or 
receive a waiver or refund of finance charges, is the ``deferred 
interest period.'' ``Deferred interest'' does not include any finance 
charges the consumer avoids paying in connection with any recurring 
grace period.
    (3) Stating the deferred interest period. If a deferred interest 
offer is advertised, the deferred interest period must be stated in a 
clear and conspicuous manner in the advertisement. If the phrase ``no 
interest'' or similar term regarding the possible avoidance of interest 
obligations under the deferred interest program is stated, the term 
``if paid in full'' must also be stated in a clear and conspicuous 
manner preceding the disclosure of the deferred interest period in the 
advertisement. If the deferred interest offer is included in a written 
or electronic advertisement, the deferred interest period and, if 
applicable, the term ``if paid in full'' must also be stated in 
immediate proximity to each statement of ``no interest,'' ``no 
payments,'' ``deferred interest,'' ``same as cash,'' or similar term 
regarding interest or payments during the deferred interest period.
    (4) Stating the terms of the deferred interest or similar offer. If 
any deferred interest offer is advertised, the information in 
paragraphs (h)(4)(i) and (h)(4)(ii) of this section must be stated in 
the advertisement, in language similar to Sample G-24 in Appendix G to 
this part. If the deferred interest offer is included in a written or 
electronic advertisement, the information in paragraphs (h)(4)(i), and 
(h)(4)(ii) of this section must also be stated in a prominent location 
closely proximate to the first statement of ``no interest,'' ``no 
payments,'' ``deferred interest,'' ``same as cash,'' or similar term 
regarding interest or payments during the deferred interest period.
    (i) A statement that interest will be charged from the date the 
consumer becomes obligated for the balance or transaction subject to 
the deferred interest offer if the balance or transaction is not paid 
in full within the deferred interest period; and
    (ii) A statement, if applicable, that interest will be charged from 
the date the consumer incurs the balance or transaction subject to the 
deferred interest offer if the account is in default before the end of 
the deferred interest period.
    (5) Envelope excluded. The requirements in paragraph (h)(4) of this 
section do not apply to an envelope or other enclosure in which an 
application or solicitation is mailed, or to a banner advertisement or 
pop-up advertisement linked to an application or solicitation provided 
electronically.
    18. Section 226.30 is revised to read as follows:


Sec.  226.30  Limitation on rates.

    A creditor shall include in any consumer credit contract secured by 
a dwelling and subject to the act and this regulation the maximum 
interest rate that may be imposed during the term of the obligation 
\50\ when:
---------------------------------------------------------------------------

    \50\ [Reserved.]
---------------------------------------------------------------------------

    (a) In the case of closed-end credit, the annual percentage rate 
may increase after consummation, or
    (b) In the case of open-end credit, the annual percentage rate may 
increase during the plan.
* * * * *
    19. A new subpart G consisting of Sec. Sec.  226.51, 226.52, 
226.53, 226.54, 226.55, 226.56, 226.57, and 226.58 is added to read as 
follows:
Subpart G--Special Rules Applicable to Credit Card Accounts and Open-
End Credit Offered to College Students
Sec.
226.51 Ability to Pay.
226.52 Limitations on fees.
226.53 Allocation of payments.
226.54 Limitations on the imposition of finance charges.
226.55 Limitations on increasing annual percentage rates, fees, and 
charges.
226.56 Requirements for over-the-limit transactions.
226.57 Special rules for marketing open-end credit to college 
students.
226.58 Internet posting of credit card agreements.

Subpart G--Special Rules Applicable to Credit Card Accounts and 
Open-End Credit Offered to College Students


Sec.  226.51  Ability to Pay.

    (a) General rule. (1) Consideration of ability to pay. A card 
issuer must not open a credit card account for a consumer under an 
open-end (not home-secured) consumer credit plan, or increase any 
credit limit applicable to such account, unless the card issuer 
considers the ability of the consumer to make the required minimum 
periodic payments under the terms of the account based on the 
consumer's income or assets and the consumer's current obligations. 
Card issuers must have reasonable policies and procedures in place to 
consider this information.
    (2) Minimum payments. (i) Reasonable method. For purposes of 
paragraph (a)(1) of this section, a card issuer must use a reasonable 
method for estimating the minimum periodic payments the consumer would 
be required to pay under the terms of the account.
    (ii) Safe harbor. A card issuer complies with paragraph (a)(2)(i) 
of this section if it estimates required minimum periodic payments 
using the following method:
    (A) The card issuer assumes utilization of the full credit line 
that the issuer is considering offering to the consumer from the first 
day of the billing cycle; and
    (B) The card issuer uses a minimum payment formula employed by the 
issuer for the product the issuer is considering offering to the 
consumer or, in the case of an existing account, the minimum payment 
formula that currently applies to that account, provided that:
    (1) If the applicable minimum payment formula includes interest

[[Page 54226]]

charges, the card issuer estimates those charges using an interest rate 
that the issuer is considering offering to the consumer for purchases 
or, in the case of an existing account, the interest rate that 
currently applies to purchases; and
    (2) If the applicable minimum payment formula includes fees, the 
card issuer may assume that no fees have been charged to the account.
    (b) Rules affecting young consumers.
    (1) Applications from young consumers. A card issuer may not open a 
credit card account under an open-end (not home-secured) consumer 
credit plan for a consumer less than 21 years old, unless the consumer 
has submitted a written application and provided:
    (i)(A) a signed agreement of a cosigner, guarantor, or joint 
applicant who is at least 21 years old to be either secondarily liable 
for any debt on the account incurred by the consumer before the 
consumer has attained the age of 21 in the event the consumer defaults 
on the account or jointly liable with the consumer for any debt on the 
account incurred by either party, and
    (B) financial information indicating such cosigner, guarantor, or 
joint applicant has the ability to make the minimum payments on such 
debts, consistent with paragraph (a) of this section; or
    (ii) financial information indicating an independent ability to 
make the minimum payments on the proposed extension of credit in 
connection with the account, consistent with paragraph (a) of this 
section.
    (2) Credit line increases for young consumers. If a credit card 
account has been opened pursuant to paragraph (b)(1)(i) of this 
section, no increase in the credit limit may be made on such account 
before the consumer attains the age of 21 unless the cosigner, 
guarantor, or joint accountholder who assumed liability at account 
opening agrees in writing to assume liability on the increase.


Sec.  226.52  Limitations on fees.

    (a) Limitations during first year after account opening. (1) 
General rule. Except as provided in paragraph (a)(2) of this section, 
if a card issuer charges any fees to a credit card account under an 
open-end (not home-secured) consumer credit plan during the first year 
after the account is opened:
    (i) The card issuer must not charge to the account during that 
period fees that in total constitute more than 25 percent of the credit 
limit in effect when the account is opened; and
    (ii) The card issuer must not require the consumer to pay any fees 
in excess of the total amount permitted by paragraph (a)(1)(i) of this 
section with respect to the account during that period.
    (2) Fees not subject to limitations. Paragraph (a) of this section 
does not apply to:
    (i) Late payment fees, over-the-limit fees, and returned-payment 
fees; or
    (ii) Fees that the consumer is not required to pay with respect to 
the account.
    (3) Rule of construction. Paragraph (a) of this section does not 
authorize the imposition or payment of fees or charges otherwise 
prohibited by law.


Sec.  226.53  Allocation of payments.

    (a) General rule. Except as provided in paragraph (b) of this 
section, when a consumer makes a payment in excess of the required 
minimum periodic payment for a credit card account under an open-end 
(not home-secured) consumer credit plan, the card issuer must allocate 
the excess amount first to the balance with the highest annual 
percentage rate and any remaining portion to the other balances in 
descending order based on the applicable annual percentage rate.
    (b) Special rule for balances subject to deferred interest or 
similar programs. When a balance on a credit card account under an 
open-end (not home-secured) consumer credit plan is subject to a 
deferred interest or similar program that provides that a consumer will 
not be obligated to pay interest that accrues on the balance if the 
balance is paid in full prior to the expiration of a specified period 
of time, the card issuer must allocate any amount paid by the consumer 
in excess of the required minimum periodic payment first to that 
balance during the two billing cycles immediately preceding expiration 
of the specified period and any remaining portion to any other balances 
consistent with paragraph (a) of this section.


Sec.  226.54  Limitations on the imposition of finance charges.

    (a) Limitations on imposing finance charges as a result of the loss 
of a grace period. (1) General rule. Except as provided in paragraph 
(b) of this section, a card issuer must not impose finance charges as a 
result of the loss of a grace period on a credit card account under an 
open-end (not home-secured) consumer credit plan if those finance 
charges are based on:
    (i) Balances for days in billing cycles that precede the most 
recent billing cycle; or
    (ii) Any portion of a balance subject to a grace period that was 
repaid prior to the expiration of the grace period.
    (2) Definition of grace period. For purposes of paragraph (a)(1) of 
this section, ``grace period'' has the same meaning as in Sec.  
226.5(b)(2)(ii).
    (b) Exceptions. Paragraph (a) of this section does not apply to:
    (1) Adjustments to finance charges as a result of the resolution of 
a dispute under Sec.  226.12 or Sec.  226.13; or
    (2) Adjustments to finance charges as a result of the return of a 
payment.


Sec.  226.55  Limitations on increasing annual percentage rates, fees, 
and charges.

    (a) General rule. Except as provided in paragraph (b) of this 
section, a card issuer must not increase an annual percentage rate or a 
fee or charge required to be disclosed under Sec.  226.6(b)(2)(ii), 
(b)(2)(iii), or (b)(2)(xii) on a credit card account under an open-end 
(not home-secured) consumer credit plan.
    (b) Exceptions. A card issuer may increase an annual percentage 
rate or a fee or charge required to be disclosed under Sec.  
226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) pursuant to an exception 
set forth in this paragraph even if that increase would not be 
permitted under a different exception.
    (1) Temporary rate exception. A card issuer may increase an annual 
percentage rate upon the expiration of a specified period of six months 
or longer, provided that:
    (i) Prior to the commencement of that period, the card issuer 
disclosed in writing to the consumer, in a clear and conspicuous 
manner, the length of the period and the annual percentage rate that 
would apply after expiration of the period; and
    (ii) Upon expiration of the specified period:
    (A) The card issuer must not apply an annual percentage rate to 
transactions that occurred prior to the period that exceeds the annual 
percentage rate that applied to those transactions prior to the period;
    (B) If the disclosures required by paragraph (b)(1)(i) of this 
section are provided pursuant to Sec.  226.9(c), the card issuer must 
not apply an annual percentage rate to transactions that occurred 
within 14 days after provision of the notice that exceeds the annual 
percentage rate that applied to that category of transactions prior to 
provision of the notice; and
    (C) The card issuer must not apply an annual percentage rate to 
transactions that occurred during the period that exceeds the increased 
annual percentage rate disclosed pursuant to paragraph (b)(1)(i) of 
this section.
    (2) Variable rate exception. A card issuer may increase an annual 
percentage rate when:
    (i) The annual percentage rate varies according to an index that is 
not under

[[Page 54227]]

the card issuer's control and is available to the general public; and
    (ii) The increase in the annual percentage rate is due to an 
increase in the index.
    (3) Advance notice exception. A card issuer may increase an annual 
percentage rate or a fee or charge required to be disclosed under Sec.  
226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) after complying with the 
applicable notice requirements in Sec.  226.9(b), (c), or (g), provided 
that:
    (i) If a card issuer discloses an increased annual percentage rate, 
fee, or charge pursuant to Sec.  226.9(b), the card issuer must not 
apply that rate, fee, or charge to transactions that occurred prior to 
provision of the notice;
    (ii) If a card issuer discloses an increased annual percentage 
rate, fee, or charge pursuant to Sec.  226.9(c) or (g), the card issuer 
must not apply that rate, fee, or charge to transactions that occurred 
prior to or within 14 days after provision of the notice; and
    (iii) This exception does not permit a card issuer to increase an 
annual percentage rate or a fee or charge required to be disclosed 
under Sec.  226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) during the 
first year after the credit card account is opened.
    (4) Delinquency exception. A card issuer may increase an annual 
percentage rate or a fee or charge required to be disclosed under Sec.  
226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) due to the card issuer not 
receiving the consumer's required minimum periodic payment within 60 
days after the due date for that payment, provided that:
    (i) The card issuer must disclose in a clear and conspicuous manner 
in the notice of the increase pursuant to Sec.  226.9(c) or (g):
    (A) A statement of the reason for the increase; and
    (B) That the increased annual percentage rate, fee, or charge will 
cease to apply if the card issuer receives six consecutive required 
minimum periodic payments on or before the payment due date beginning 
with the first payment due following the effective date of the 
increase; and
    (ii) If the card issuer receives six consecutive required minimum 
periodic payments on or before the payment due date beginning with the 
first payment due following the effective date of the increase, the 
card issuer must reduce any annual percentage rate, fee, or charge 
increased pursuant to this exception to the annual percentage rate, 
fee, or charge that applied prior to the increase with respect to 
transactions that occurred prior to or within 14 days after provision 
of the Sec.  226.9(c) or (g) notice.
    (5) Workout and temporary hardship arrangement exception. A card 
issuer may increase an annual percentage rate or a fee or charge 
required to be disclosed under Sec.  226.6(b)(2)(ii), (b)(2)(iii), or 
(b)(2)(xii) due to the consumer's completion of a workout or temporary 
hardship arrangement or the consumer's failure to comply with the terms 
of such an arrangement, provided that:
    (i) Prior to commencement of the arrangement, the card issuer has 
provided the consumer with a clear and conspicuous written disclosure 
of the terms of the arrangement (including any increases due to the 
completion or failure of the arrangement); and
    (ii) Upon the completion or failure of the arrangement, the card 
issuer must not apply to any transactions that occurred prior to 
commencement of the arrangement an annual percentage rate, fee, or 
charge that exceeds the annual percentage rate, fee, or charge that 
applied to those transactions prior to commencement of the arrangement.
    (6) Servicemembers Civil Relief Act exception. If an annual 
percentage rate has been decreased pursuant to 50 U.S.C. app. 527, a 
card issuer may increase that annual percentage rate once 50 U.S.C. 
app. 527 no longer applies, provided that the card issuer must not 
apply to any transactions that occurred prior to the decrease an annual 
percentage rate that exceeds the annual percentage rate that applied to 
those transactions prior to the decrease.
    (c) Treatment of protected balances. (1) Definition of protected 
balance. For purposes of this paragraph, ``protected balance'' means 
the amount owed for a category of transactions to which an increased 
annual percentage rate or an increased fee or charge required to be 
disclosed under Sec.  226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) 
cannot be applied after the annual percentage rate, fee, or charge for 
that category of transactions has been increased pursuant to paragraph 
(b)(3) of this section.
    (2) Repayment of protected balance. The card issuer must not 
require repayment of the protected balance using a method that is less 
beneficial to the consumer than one of the following methods:
    (i) The method of repayment for the account before the effective 
date of the increase;
    (ii) An amortization period of not less than five years, beginning 
no earlier than the effective date of the increase; or
    (iii) A required minimum periodic payment that includes a 
percentage of the balance that is equal to no more than twice the 
percentage required before the effective date of the increase.
    (d) Continuing application. This section continues to apply to a 
balance on a credit card account after:
    (1) The account is closed or acquired by another creditor; or
    (2) The balance is transferred from a credit card account issued by 
a creditor to another credit account issued by the same creditor or its 
affiliate or subsidiary (unless the account to which the balance is 
transferred is subject to Sec.  226.5b).


Sec.  226.56  Requirements for over-the-limit transactions.

    (a) Definition. For purposes of this section, the term ``over-the-
limit transaction'' means any extension of credit by a creditor to 
complete a transaction that causes a consumer's credit card account 
balance to exceed the credit limit.
    (b) Opt-in requirement. (1) General. A creditor shall not assess a 
fee or charge on a consumer's credit card account under an open-end 
(not home-secured) consumer credit plan for an over-the-limit 
transaction unless the creditor:
    (i) Provides the consumer with an oral, written or electronic 
notice explaining the consumer's right to affirmatively consent, or opt 
in, to the creditor's payment of an over-the-limit transaction;
    (ii) Provides a reasonable opportunity for the consumer to 
affirmatively consent, or opt in, to the creditor's payment of over-
the-limit transactions;
    (iii) Obtains the consumer's affirmative consent, or opt-in, to the 
creditor's payment of such transactions; and
    (iv) If the consumer affirmatively consents, or opts in, provides 
the consumer notice of the right to revoke that consent following the 
assessment of an over-the-limit fee or charge.
    (2) Completion of over-the-limit transactions without consumer 
consent. Notwithstanding the absence of a consumer's affirmative 
consent under paragraph (b)(1)(iii) of this section, a creditor may pay 
any over-the-limit transaction on a consumer's account provided that 
the creditor does not impose any fee or charge on the account for 
paying that over-the-limit transaction.
    (c) Method of election. A creditor may permit a consumer to consent 
to the creditor's payment of any over-the-limit transaction in writing, 
orally, or electronically. The creditor must also permit the consumer 
to revoke his or

[[Page 54228]]

her consent using the same methods available to the consumer for 
providing consent.
    (d) Timing of notices. (1) Initial notice. (i) General. The notice 
required by paragraph (b)(1)(i) of this section shall be provided prior 
to the assessment of any over-the-limit fee or charge on a consumer's 
account;
    (ii) Oral or written consent. If a consumer elects to consent to 
the creditor's payment of any over-the-limit transaction by oral or 
electronic means, the creditor must provide the notice required by 
paragraph (b)(1)(i) of this section immediately prior to and 
contemporaneously with obtaining that consent.
    (2) Subsequent notice. The notice required by paragraph (b)(1)(iv) 
of this section shall be provided on the front of any page of each 
periodic statement that reflects the assessment of an over-the-limit 
fee or charge on a consumer's account.
    (e) Content. (1) Initial notice. The notice required by paragraph 
(b)(1)(i) of this section shall include:
    (i) Fees. The dollar amount of any fees or charges assessed by the 
creditor on a consumer's account for an over-the-limit transaction;
    (ii) APRs. Any increased periodic rate(s) (expressed as an annual 
percentage rate(s)) that may be imposed on the account as a result of 
an over-the-limit transaction; and
    (iii) Disclosure of opt-in right. An explanation of the consumer's 
right to affirmatively consent to the creditor's payment of over-the-
limit transactions, including the method(s) by which the consumer may 
consent to the service.
    (2) Subsequent notice. The notice required by paragraph (b)(1)(iv) 
of this section shall describe the consumer's right to revoke any 
consent provided under paragraph (b)(1)(iii) of this section, including 
the method(s) by which the consumer may revoke the service.
    (3) Safe harbor. Use of Model Forms G-25(A) or G-25(B) of Appendix 
G to this part, or substantially similar notices, constitutes 
compliance with the notice content requirements of paragraph (e) of 
this section.
    (f) Joint relationships. If two or more consumers are jointly 
liable on a credit card account under an open-end (not home-secured) 
consumer credit plan, the creditor shall treat the affirmative consent 
of any of the joint consumers as affirmative consent for that account. 
Similarly, the creditor shall treat a revocation of consent by any of 
the joint consumers as revocation of consent for that account.
    (g) Continuing right to opt in or revoke opt-in. A consumer may 
affirmatively consent to the creditor's payment of over-the-limit 
transactions at any time in the manner described in the notice required 
by paragraph (b)(1)(i) of this section. Similarly, the consumer may 
revoke the consent at any time in the manner described in the notice 
required by paragraph (b)(1)(iv) of this section.
    (h) Duration of opt-in. A consumer's affirmative consent to the 
creditor's payment of over-the-limit transactions is effective until 
revoked by the consumer, or until the creditor decides for any reason 
to cease paying over-the-limit transactions for the consumer.
    (i) Time to comply with revocation request. A creditor must comply 
with a consumer's revocation request as soon as reasonably practicable 
after the creditor receives it.
    (j) Prohibited practices. Notwithstanding a consumer's affirmative 
consent to a creditor's payment of over-the-limit transactions, a 
creditor is prohibited from engaging in the following practices:
    (1) Fees or charges imposed per cycle.
    (i) General rule. A creditor may not impose more than one over-the-
limit fee or charge on a consumer's credit card account per billing 
cycle, and, except as provided in paragraph (j)(1)(ii) of this section, 
may not impose an over-the-limit fee or charge on the consumer's credit 
card account for more than three billing cycles for the same over-the-
limit transaction where the consumer has not reduced the account 
balance below the credit limit by the payment due date for either of 
the last two billing cycles.
    (ii) Exception. The prohibition in paragraph (j)(1)(i) of this 
section on imposing an over-the-limit fee or charge in more than three 
billing cycles for the same over-the-limit transaction(s) does not 
apply if an over-the-limit transaction occurs during either of the last 
two billing cycles.
    (2) Failure to promptly replenish. A creditor may not impose an 
over-the-limit fee or charge solely because of creditor's failure to 
promptly replenish the consumer's available credit following the 
crediting of the consumer's payment under Sec.  226.10.
    (3) Conditioning. A creditor may not condition the amount of a 
consumer's credit limit on the consumer affirmatively consenting to the 
creditor's payment of over-the-limit transactions if the creditor 
assesses a fee or charge for such service.
    (4) Over-the-limit fees attributed to fees or interest. A creditor 
may not impose an over-the-limit fee or charge if a consumer exceeds a 
credit limit solely because of fees or interest charged by the creditor 
to the consumer's account during the billing cycle. For purposes of 
this paragraph (j)(4), fees or interest charges that may not trigger an 
over-the-limit fee or charge are charges imposed as part of the plan 
under Sec.  226.6(b)(3).


Sec.  226.57  Special rules for marketing open-end credit to college 
students.

    (a) Definitions:
    (1) College student credit card. The term ``college student credit 
card'' in this section means a credit card issued under a credit card 
account under an open-end (not home-secured) consumer credit plan to 
any college student.
    (2) College student. The term ``college student'' as used in this 
section means an individual who is a full-time or part-time student of 
an institution of higher education.
    (3) Institution of higher education. The term ``institution of 
higher education'' as used in this section has the same meaning as in 
sections 101 and 102 of the Higher Education Act of 1965 (20 U.S.C. 
1001 and 1002).
    (4) Affiliated organization. The term ``affiliated organization'' 
in this section means an alumni organization or foundation affiliated 
with or related to an institution of higher education.
    (5) College credit card agreement. The term ``college credit card 
agreement'' in this section means any business, marketing or 
promotional agreement between a card issuer and an institution of 
higher education or an affiliated organization in connection with which 
college student credit cards are issued to college students currently 
enrolled at that institution.
    (b) Public disclosure of agreements. An institution of higher 
education shall publicly disclose any contract or other agreement made 
with a card issuer or creditor for the purpose of marketing a credit 
card.
    (c) Prohibited inducements. No card issuer or creditor may offer a 
college student any tangible item to induce such student to apply for 
or open an open-end consumer credit plan offered by such card issuer or 
creditor, if such offer is made:
    (1) On the campus of an institution of higher education;
    (2) Near the campus of an institution of higher education; or
    (3) At an event sponsored by or related to an institution of higher 
education.
    (d) Annual report to the Board. (1) Requirement to register. A card 
issuer subject to the requirement to report under Sec.  226.57(d)(2) 
with regard to calendar year 2009 must register with the Board in the 
form and manner prescribed by the Board no later than

[[Page 54229]]

February 1, 2010. A card issuer that becomes subject to the requirement 
to report under Sec.  226.57(d)(2) after December 31, 2009, must 
register with the Board in the form and manner prescribed by the Board 
no later than February 1 following the calendar year in which the 
issuer becomes subject.
    (2) Requirement to report. Any card issuer that was a party to one 
or more college credit card agreements in effect at any time during a 
calendar year must submit to the Board an annual report regarding those 
agreements in the form and manner prescribed by the Board.
    (3) Contents of report. The annual report to the Board must include 
the following:
    (i) A copy of any college credit card agreement to which the card 
issuer was a party that was in effect at any time during the period 
covered by the report;
    (ii) A copy of any memorandum of understanding in effect at any 
time during the period covered by the report between the card issuer 
and an institution of higher education or affiliated organization that 
directly or indirectly relates to the college credit card agreement or 
that controls or directs any obligations or distribution of benefits 
between any such entities;
    (iii) The total dollar amount of any payments pursuant to a college 
credit card agreement from the card issuer to an institution of higher 
education or affiliated organization during the period covered by the 
report, and how such amounts are determined;
    (iv) The number of credit card accounts opened pursuant to any 
college credit card agreement during the period covered by the report; 
and
    (v) The total number of credit card accounts opened pursuant to any 
such agreement that were open at the end of the period covered by the 
report.
    (4) Timing of reports. Except for the initial report described 
below, a card issuer must submit its annual report for each calendar 
year to the Board by the first business day on or after March 31 of the 
following year. Card issuers must submit the first report following the 
effective date of this section, providing information for the 2009 
calendar year, to the Board by February 22, 2010.


Sec.  226.58  Internet posting of credit card agreements.

    (a) Applicability. The requirements of this section apply to any 
card issuer that issues credit cards under a credit card account under 
an open-end (not home-secured) consumer credit plan.
    (b) Definitions. (1) Agreement. For purposes of this section, 
``agreement'' or ``credit card agreement'' means a written document or 
documents evidencing the terms of the legal obligation, or the 
prospective legal obligation, between a card issuer and a consumer 
under a credit card account for an open-end (not home-secured) consumer 
credit plan. The ``agreement'' or ``credit card agreement'' also 
includes the pricing information, as defined in Sec.  226.58(b)(4).
    (2) Business day. For purposes of this section, ``business day'' 
means a day on which the creditor's offices are open to the public for 
carrying on substantially all of its business functions.
    (3) Offers. For purposes of this section, an issuer ``offers'' or 
``offers to the public'' an agreement if the issuer is soliciting or 
accepting applications for accounts that would be subject to that 
agreement.
    (4) Pricing information. For purposes of this section, ``pricing 
information'' means:
    (i) The information under Sec.  226.6(b)(2)(i) through (b)(2)(xii), 
(b)(3) and (b)(4) required to be disclosed in writing pursuant to Sec.  
226.5(a)(1)(ii);
    (ii) The credit limit; and
    (iii) The method used to calculate required minimum payments.
    (c) Registration with Board. (1) Initial registration. A card 
issuer that offered one or more credit card agreements as of December 
31, 2009, must register with the Board, in the form and manner 
prescribed by the Board, no later than February 1, 2010, unless the 
card issuer would have qualified for the de minimis exception under 
Sec.  226.58(e) as of December 31, 2009.
    (2) Subsequent registrations. A card issuer that that is required 
to make a submission to the Board under Sec.  226.58(d) that has not 
previously registered with the Board must register with the Board, in 
the form and manner prescribed by the Board, at least 21 days before 
the quarterly submission deadline specified in Sec.  226.58(d)(1) on 
which the card issuer's first submission to the Board is due.
    (3) Updates. If information contained in a card issuer's 
registration under Sec.  226.58(c)(1) or (c)(2) changes, the issuer 
must provide to the Board updated registration information, in the form 
and manner prescribed by the Board, no later than the first quarterly 
submission deadline specified in Sec.  226.58(d)(1) following the 
change.
    (d) Submission of agreements to Board. (1) Timing and content of 
submissions. A card issuer must make quarterly submissions to the 
Board, in the form and manner specified by the Board, that contain:
    (i) The credit card agreements, as described in Appendix N, that 
the card issuer offered to the public as of the last business day of 
the preceding calendar quarter that the card issuer has not previously 
submitted to the Board;
    (ii) Any credit card agreement previously submitted to the Board 
that was modified or amended during the preceding calendar quarter, as 
described in Sec.  226.58(d)(3); and
    (iii) Notification regarding any credit card agreement previously 
submitted to the Board that the issuer is withdrawing, as described in 
Sec.  226.58(d)(4) and (e). Except as provided in Sec.  226.58(d)(2), 
quarterly submissions to the Board are due no later than the first 
business day on or after January 31, April 30, July 31, and October 31 
of each year.
    (2) Timing of first two submissions. The first submission following 
the effective date of this section must be sent to the Board no later 
than February 22, 2010, and must contain the credit card agreements 
that the card issuer offered to the public as of December 31, 2009. The 
next submission must be sent to the Board no later than August 2, 2010, 
and must contain:
    (i) The credit card agreements that the card issuer offered to the 
public as of June 30, 2010, that the card issuer has not previously 
submitted to the Board;
    (ii) Any credit card agreement previously submitted to the Board 
that was modified or amended after December 31, 2009, and on or before 
June 30, 2010, as described in Sec.  226.58(d)(3); and
    (iii) Notification regarding any credit card agreement previously 
submitted to the Board that the issuer is withdrawing as of June 30, 
2010, as described in Sec.  226.58(d)(4) and (e).
    (3) Changes to agreements. If a credit card agreement has been 
submitted to the Board, no changes have been made to the agreement, and 
the card issuer continues to offer the agreement to the public, no 
additional submission of that agreement is required. If a change is 
made to a credit card agreement that previously has been submitted to 
the Board, including a change to any provisions of the agreement or to 
the pricing information, the card issuer must submit the entire revised 
agreement to the Board, in the form and manner specified by the Board, 
by the first quarterly submission deadline after the last day of the 
calendar quarter in which the change became effective.
    (4) Withdrawal of agreements. If a card issuer no longer offers to 
the public a credit card agreement that previously has been submitted 
to the Board, the card issuer must notify the Board, in the form and 
manner specified by the Board, by the first quarterly submission 
deadline after the last day of the

[[Page 54230]]

calendar quarter in which the issuer ceased to offer the agreement that 
the agreement is being withdrawn.
    (e) De minimis exception. (1) A card issuer is not required to 
submit any credit card agreements to the Board under Sec.  226.58(d) if 
the card issuer had fewer than 10,000 open credit card accounts under 
open-end (not home-secured) consumer credit plans as of the last 
business day of the calendar quarter.
    (2) If an issuer that previously qualified for the de minimis 
exception ceases to qualify, the card issuer must begin making 
quarterly submissions to the Board under Sec.  226.58(d) no later than 
the first quarterly submission deadline after the date as of which the 
issuer ceased to qualify.
    (3) If a card issuer that did not previously qualify comes within 
the de minimis exception, the card issuer may notify the Board that the 
card issuer is withdrawing each agreement the card issuer previously 
submitted to the Board. Until the card issuer notifies the Board, in 
the form and manner specified by the Board, that each agreement the 
card issuer previously submitted to the Board is being withdrawn, the 
card issuer must continue to make quarterly submissions to the Board 
under Sec.  226.58(d) and to provide updated registration information 
under Sec.  226.58(c)(3).
    (f) Agreements posted on card issuer's Web site. A card issuer must 
establish and maintain a publicly available Web site and make its 
credit card agreements available through the Web site, as specified in 
Appendix N, as follows:
    (1) Agreements offered to the public. A card issuer must post and 
maintain on its publicly available Web site the credit card agreements 
that the issuer is required to submit to the Board as provided in Sec.  
226.58(d).
    (2) Agreements for all open accounts. With respect to any open 
credit card account under an open-end (not home-secured) consumer 
credit plan, a card issuer must either:
    (i) Post and maintain the cardholder's agreement on its Web site; 
or
    (ii) Promptly provide a copy of the cardholder's agreement to the 
cardholder upon the cardholder's request. If the card issuer makes an 
agreement available upon request, the issuer must provide the 
cardholder with the ability to request a copy of the agreement both:
    (A) By using the issuer's Web site (such as by clicking on a 
clearly identified box to make the request); and
    (B) By calling a toll-free telephone number that is displayed on 
the issuer's Web site and clearly identified as to purpose. The card 
issuer must send to the cardholder or otherwise make available to the 
cardholder a copy of the cardholder's agreement no later than 10 
business days after the issuer receives the cardholder's request.
    (3) E-Sign Act requirements. Card issuers may provide credit card 
agreements in electronic form under Sec.  226.58(f)(1) and (f)(2) 
without regard to the consumer notice and consent requirements of 
section 101(c) of the Electronic Signatures in Global and National 
Commerce Act (E-Sign Act) (15 U.S.C. 7001 et seq.).
    20. Appendix E to part 226 is revised to read as follows:

Appendix E to Part 226--Rules for Card Issuers that Bill on a 
Transaction-by-Transaction Basis

    The following provisions of Subpart B apply if credit cards are 
issued and the card issuer and the seller are the same or related 
persons; no finance charge is imposed; consumers are billed in full 
for each use of the card on a transaction-by-transaction basis, by 
means of an invoice or other statement reflecting each use of the 
card; and no cumulative account is maintained which reflects the 
transactions by each consumer during a period of time, such as a 
month. The term ``related person'' refers to, for example, a 
franchised or licensed seller of a creditor's product or service or 
a seller who assigns or sells sales accounts to a creditor or 
arranges for credit under a plan that allows the consumer to use the 
credit only in transactions with that seller. A seller is not 
related to the creditor merely because the seller and the creditor 
have an agreement authorizing the seller to honor the creditor's 
credit card.
    1. Section 226.6(a)(5) or Sec.  226.6(b)(5)(iii).
    2. Section 226.6(a)(2) or Sec.  226.6(b)(3)(ii)(B), as 
applicable. The disclosure required by Sec.  226.6(a)(2) or Sec.  
226.6(b)(3)(ii)(B) shall be limited to those charges that are or may 
be imposed as a result of the deferral of payment by use of the 
card, such as late payment or delinquency charges. A tabular format 
is not required.
    3. Section 226.6(a)(4) or Sec.  226.6(b)(5)(ii).
    4. Section 226.7(a)(2) or Sec.  226.7(b)(2), as applicable; 
Sec.  226.7(a)(9) or Sec.  226.7(b)(9), as applicable. Creditors may 
comply by placing the required disclosures on the invoice or 
statement sent to the consumer for each transaction.
    5. Section 226.9(a). Creditors may comply by mailing or 
delivering the statement required by Sec.  226.6(a)(5) or Sec.  
226.6(b)(5)(iii) (see appendix G-3 and G-3(A) to this part) to each 
consumer receiving a transaction invoice during a one-month period 
chosen by the card issuer or by sending either the statement 
prescribed by Sec.  226.6(a)(5) or Sec.  226.6(b)(5)(iii), or an 
alternative billing error rights statement substantially similar to 
that in appendix G-4 and G-4(A) to this part, with each invoice sent 
to a consumer.
    6. Section 226.9(c). A tabular format is not required.
    7. Section 226.10.
    8. Section 226.11(a). This section applies when a card issuer 
receives a payment or other credit that exceeds by more than $1 the 
amount due, as shown on the transaction invoice. The requirement to 
credit amounts to an account may be complied with by other 
reasonable means, such as by a credit memorandum. Since no periodic 
statement is provided, a notice of the credit balance shall be sent 
to the consumer within a reasonable period of time following its 
occurrence unless a refund of the credit balance is mailed or 
delivered to the consumer within seven business days of its receipt 
by the card issuer.
    9. Section 226.12 including Sec.  226.12(c) and (d), as 
applicable. Section 226.12(e) is inapplicable.
    10. Section 226.13, as applicable. All references to ``periodic 
statement'' shall be read to indicate the invoice or other statement 
for the relevant transaction. All actions with regard to correcting 
and adjusting a consumer's account may be taken by issuing a refund 
or a new invoice, or by other appropriate means consistent with the 
purposes of the section.
    11. Section 226.15, as applicable.

    21. Appendix F to part 226 is revised to read as follows:

Appendix F to Part 226--Optional Annual Percentage Rate Computations 
for Creditors Offering Open-End Plans Subject to the Requirements of 
Sec.  226.5b

    In determining the denominator of the fraction under Sec.  
226.14(c)(3), no amount will be used more than once when adding the 
sum of the balances \1\ subject to periodic rates to the sum of the 
amounts subject to specific transaction charges. (Where a portion of 
the finance charge is determined by application of one or more daily 
periodic rates, the phrase ``sum of the balances'' shall also mean 
the ``average of daily balances.'') In every case, the full amount 
of transactions subject to specific transaction charges shall be 
included in the denominator. Other balances or parts of balances 
shall be included according to the manner of determining the balance 
subject to a periodic rate, as illustrated in the following examples 
of accounts on monthly billing cycles:
---------------------------------------------------------------------------

    \1\ [Reserved].
---------------------------------------------------------------------------

    1. Previous balance--none.
    A specific transaction of $100 occurs on the first day of the 
billing cycle. The average daily balance is $100. A specific 
transaction charge of 3 percent is applicable to the specific 
transaction. The periodic rate is 1\1/2\ percent applicable to the 
average daily balance. The numerator is the amount of the finance 
charge, which is $4.50. The denominator is the amount of the 
transaction (which is $100), plus the amount by which the balance 
subject to the periodic rate exceeds the amount of the specific 
transactions (such excess in this case is 0), totaling $100.
    The annual percentage rate is the quotient (which is 4\1/2\ 
percent) multiplied by 12 (the number of months in a year), i.e., 54 
percent.
    2. Previous balance--$100.
    A specific transaction of $100 occurs at the midpoint of the 
billing cycle. The average

[[Page 54231]]

daily balance is $150. A specific transaction charge of 3 percent is 
applicable to the specific transaction. The periodic rate is 1\1/2\ 
percent applicable to the average daily balance. The numerator is 
the amount of the finance charge which is $5.25. The denominator is 
the amount of the transaction (which is $100), plus the amount by 
which the balance subject to the periodic rate exceeds the amount of 
the specific transaction (such excess in this case is $50), totaling 
$150. As explained in example 1, the annual percentage rate is 3\1/
2\ percent x 12 = 42 percent.
    3. If, in example 2, the periodic rate applies only to the 
previous balance, the numerator is $4.50 and the denominator is $200 
(the amount of the transaction, $100, plus the balance subject only 
to the periodic rate, the $100 previous balance). As explained in 
example 1, the annual percentage rate is 2\1/4\ percent x 12 = 27 
percent.
    4. If, in example 2, the periodic rate applies only to an 
adjusted balance (previous balance less payments and credits) and 
the consumer made a payment of $50 at the midpoint of the billing 
cycle, the numerator is $3.75 and the denominator is $150 (the 
amount of the transaction, $100, plus the balance subject to the 
periodic rate, the $50 adjusted balance). As explained in example 1, 
the annual percentage rate is 2\1/2\ percent x 12 = 30 percent.
    5. Previous balance--$100.
    A specific transaction (check) of $100 occurs at the midpoint of 
the billing cycle. The average daily balance is $150. The specific 
transaction charge is $.25 per check. The periodic rate is 1\1/2\ 
percent applied to the average daily balance. The numerator is the 
amount of the finance charge, which is $2.50 and includes the $.25 
check charge and the $2.25 resulting from the application of the 
periodic rate. The denominator is the full amount of the specific 
transaction (which is $100) plus the amount by which the average 
daily balance exceeds the amount of the specific transaction (which 
in this case is $50), totaling $150. As explained in example 1, the 
annual percentage rate would be 1\2/3\ percent x 12 = 20 percent.
    6. Previous balance--none.
    A specific transaction of $100 occurs at the midpoint of the 
billing cycle. The average daily balance is $50. The specific 
transaction charge is 3 percent of the transaction amount or $3.00. 
The periodic rate is 1\1/2\; percent per month applied to the 
average daily balance. The numerator is the amount of the finance 
charge, which is $3.75, including the $3.00 transaction charge and 
$.75 resulting from application of the periodic rate. The 
denominator is the full amount of the specific transaction ($100) 
plus the amount by which the balance subject to the periodic rate 
exceeds the amount of the transaction ($0). Where the specific 
transaction amount exceeds the balance subject to the periodic rate, 
the resulting number is considered to be zero rather than a negative 
number ($50 - $100 = -$50). The denominator, in this case, is $100. 
As explained in example 1, the annual percentage rate is 3\3/4\ 
percent x 12 = 45 percent.

    22. Appendix G to part 226 is amended by:
    A. Revising the table of contents at the beginning of the appendix;
    B. Revising Forms G-1, G-2, G-3, G-4, G-10(A), G-10(B), G-10(C), G-
11, and G-13(A) and (B);
    C. Adding new Forms G-1(A), G-2(A), G-3(A), G-4(A), G-10(D) and 
(E), G-16(A) and (B), G-17(A) through (D), G-18(A) through (D), and G-
18(F) through (H), G-19, G-20, G-21, G-22, G-23, G-24, G-25(A) and (B) 
in numerical order; and
    D. Removing and reserving Form G-12.
    E. Reserving Form G-18(E).

Appendix G to Part 226--Open-End Model Forms and Clauses

G-1 Balance Computation Methods Model Clauses (Home-equity Plans) 
(Sec. Sec.  226.6 and 226.7)
G-1(A) Balance Computation Methods Model Clauses (Plans other than 
Home-equity Plans) (Sec. Sec.  226.6 and 226.7)
G-2 Liability for Unauthorized Use Model Clause (Home-equity Plans) 
(Sec.  226.12)
G-2(A) Liability for Unauthorized Use Model Clause (Plans Other Than 
Home-equity Plans) (Sec.  226.12)
G-3 Long-Form Billing-Error Rights Model Form (Home-equity Plans) 
(Sec. Sec.  226.6 and 226.9)
G-3(A) Long-Form Billing-Error Rights Model Form (Plans Other Than 
Home-equity Plans) (Sec. Sec.  226.6 and 226.9)
G-4 Alternative Billing-Error Rights Model Form (Home-equity Plans) 
(Sec.  226.9)
G-4(A) Alternative Billing-Error Rights Model Form (Plans Other Than 
Home-equity Plans) (Sec.  226.9)
G-5 Rescission Model Form (When Opening an Account) (Sec.  226.15)
G-6 Rescission Model Form (For Each Transaction) (Sec.  226.15)
G-7 Rescission Model Form (When Increasing the Credit Limit) (Sec.  
226.15)
G-8 Rescission Model Form (When Adding a Security Interest) (Sec.  
226.15)
G-9 Rescission Model Form (When Increasing the Security) (Sec.  
226.15)
G-10(A) Applications and Solicitations Model Form (Credit Cards) 
(Sec.  226.5a(b))
G-10(B) Applications and Solicitations Sample (Credit Cards) (Sec.  
226.5a(b))
G-10(C) Applications and Solicitations Sample (Credit Cards) (Sec.  
226.5a(b))
G-10(D) Applications and Solicitations Model Form (Charge Cards) 
(Sec.  226.5a(b))
G-10(E) Applications and Solicitations Sample (Charge Cards) (Sec.  
226.5a(b))
G-11 Applications and Solicitations Made Available to General Public 
Model Clauses (Sec.  226.5a(e))
G-12 Reserved
G-13(A) Change in Insurance Provider Model Form (Combined Notice) 
(Sec.  226.9(f))
G-13(B) Change in Insurance Provider Model Form (Sec.  226.9(f)(2))
G-14(A) Home-equity Sample
G-14(B) Home-equity Sample
G-15 Home-equity Model Clauses
G-16(A) Debt Suspension Model Clause (Sec.  226.4(d)(3))
G-16(B) Debt Suspension Sample (Sec.  226.4(d)(3))
G-17(A) Account-opening Model Form (Sec.  226.6(b)(2))
G-17(B) Account-opening Sample (Sec.  226.6(b)(2))
G-17(C) Account-opening Sample (Sec.  226.6(b)(2))
G-17(D) Account-opening Sample (Sec.  226.6(b)(2))
G-18(A) Transactions; Interest Charges; Fees Sample (Sec.  226.7(b))
G-18(B) Late Payment Fee Sample (Sec.  226.7(b))
G-18(C)(1) Minimum Payment Warning (When Amortization Occurs and 
Minimum Payment Repayment Estimate is Greater than Three Years) 
(Sec.  226.7(b))
G-18(C)(2) Minimum Payment Warning (When Amortization Occurs and 
Minimum Payment Repayment Estimate is Equal to or Less than Three 
Years) (Sec.  226.7(b))
G-18(C)(3) Minimum Payment Warning (When Negative or No Amortization 
Occurs) (Sec.  226.7(b))
G-18(D) Periodic Statement New Balance, Due Date, Late Payment and 
Minimum Payment Sample (Credit cards) (Sec.  226.7(b))
G-18(E) [Reserved]
G-18(F) Periodic Statement Form
G-18(G) Periodic Statement Form
G-18(H) Deferred Interest Periodic Statement Clause
G-19 Checks Accessing a Credit Card Account Sample (Sec.  
226.9(b)(3))
G-20 Change-in-Terms Sample (Increase in Annual Percentage Rate) 
(Sec.  226.9(c)(2))
G-21 Change-in-Terms Sample (Increase in Fees) (Sec.  226.9(c)(2))
G-22 Penalty Rate Increase Sample (Payment 60 or Fewer Days Late) 
(Sec.  226.9(g)(3))
G-23 Penalty Rate Increase Sample (Payment More Than 60 Days Late) 
(Sec.  226.9(g)(3))
G-24 Deferred Interest Offer Clauses (Sec.  226.16(h))
G-25(A) Consent Form for Over-the-Limit Transactions (Sec.  226.56)
G-25(B) Revocation Notice for Periodic Statement Regarding Over-the-
Limit Transactions (Sec.  226.56)

G-1--Balance Computation Methods Model Clauses (Home-Equity Plans)

(a) Adjusted balance method

    We figure [a portion of] the finance charge on your account by 
applying the periodic rate to the ``adjusted balance'' of your 
account. We get the ``adjusted balance'' by taking the balance you 
owed at the end of the previous billing cycle and subtracting [any 
unpaid finance charges and] any payments and credits received during 
the present billing cycle.

(b) Previous balance method

    We figure [a portion of] the finance charge on your account by 
applying the periodic rate to the amount you owe at the beginning of 
each billing cycle [minus any unpaid finance charges]. We do not 
subtract any payments or credits received during the billing cycle. 
[The amount of payments and credits to your account this billing 
cycle was $ ------.]

[[Page 54232]]

(c) Average daily balance method (excluding current transactions)

    We figure [a portion of] the finance charge on your account by 
applying the periodic rate to the ``average daily balance'' of your 
account (excluding current transactions). To get the ``average daily 
balance'' we take the beginning balance of your account each day and 
subtract any payments or credits [and any unpaid finance charges]. 
We do not add in any new [purchases/advances/loans]. This gives us 
the daily balance. Then, we add all the daily balances for the 
billing cycle together and divide the total by the number of days in 
the billing cycle. This gives us the ``average daily balance.''

(d) Average daily balance method (including current transactions)

    We figure [a portion of] the finance charge on your account by 
applying the periodic rate to the ``average daily balance'' of your 
account (including current transactions). To get the ``average daily 
balance'' we take the beginning balance of your account each day, 
add any new [purchases/advances/loans], and subtract any payments or 
credits, [and unpaid finance charges]. This gives us the daily 
balance. Then, we add up all the daily balances for the billing 
cycle and divide the total by the number of days in the billing 
cycle. This gives us the ``average daily balance.''

(e) Ending balance method

    We figure [a portion of] the finance charge on your account by 
applying the periodic rate to the amount you owe at the end of each 
billing cycle (including new purchases and deducting payments and 
credits made during the billing cycle).

(f) Daily balance method (including current transactions)

    We figure [a portion of] the finance charge on your account by 
applying the periodic rate to the ``daily balance'' of your account 
for each day in the billing cycle. To get the ``daily balance'' we 
take the beginning balance of your account each day, add any new 
[purchases/advances/fees], and subtract [any unpaid finance charges 
and] any payments or credits. This gives us the daily balance.

G-1(A)--Balance Computation Methods Model Clauses (Plans Other Than 
Home-Equity Plans)

(a) Adjusted balance method

    We figure the interest charge on your account by applying the 
periodic rate to the ``adjusted balance'' of your account. We get 
the ``adjusted balance'' by taking the balance you owed at the end 
of the previous billing cycle and subtracting [any unpaid interest 
or other finance charges and] any payments and credits received 
during the present billing cycle.

(b) Previous balance method

    We figure the interest charge on your account by applying the 
periodic rate to the amount you owe at the beginning of each billing 
cycle. We do not subtract any payments or credits received during 
the billing cycle.

(c) Average daily balance method (excluding current transactions)

    We figure the interest charge on your account by applying the 
periodic rate to the ``average daily balance'' of your account. To 
get the ``average daily balance'' we take the beginning balance of 
your account each day and subtract [any unpaid interest or other 
finance charges and] any payments or credits. We do not add in any 
new [purchases/advances/fees]. This gives us the daily balance. 
Then, we add all the daily balances for the billing cycle together 
and divide the total by the number of days in the billing cycle. 
This gives us the ``average daily balance.''

(d) Average daily balance method (including current transactions)

    We figure the interest charge on your account by applying the 
periodic rate to the ``average daily balance'' of your account. To 
get the ``average daily balance'' we take the beginning balance of 
your account each day, add any new [purchases/advances/fees], and 
subtract [any unpaid interest or other finance charges and] any 
payments or credits. This gives us the daily balance. Then, we add 
up all the daily balances for the billing cycle and divide the total 
by the number of days in the billing cycle. This gives us the 
``average daily balance.''

(e) Ending balance method

    We figure the interest charge on your account by applying the 
periodic rate to the amount you owe at the end of each billing cycle 
(including new [purchases/advances/fees] and deducting payments and 
credits made during the billing cycle).

(f) Daily balance method (including current transactions)

    We figure the interest charge on your account by applying the 
periodic rate to the ``daily balance'' of your account for each day 
in the billing cycle. To get the ``daily balance'' we take the 
beginning balance of your account each day, add any new [purchases/
advances/fees], and subtract [any unpaid interest or other finance 
charges and] any payments or credits. This gives us the daily 
balance.

G-2--Liability for Unauthorized Use Model Clause (Home-Equity Plans)

    You may be liable for the unauthorized use of your credit card 
[or other term that describes the credit card]. You will not be 
liable for unauthorized use that occurs after you notify [name of 
card issuer or its designee] at [address], orally or in writing, of 
the loss, theft, or possible unauthorized use. [You may also contact 
us on the Web: [Creditor Web or e-mail address]] In any case, your 
liability will not exceed [insert $50 or any lesser amount under 
agreement with the cardholder].

G-2(A)--Liability for Unauthorized Use Model Clause (Plans Other Than 
Home-Equity Plans)

    If you notice the loss or theft of your credit card or a 
possible unauthorized use of your card, you should write to us 
immediately at: [address] [address listed on your bill], or call us 
at [telephone number].

[You may also contact us on the Web: [Creditor Web or e-mail 
address]]

    You will not be liable for any unauthorized use that occurs 
after you notify us. You may, however, be liable for unauthorized 
use that occurs before your notice to us. In any case, your 
liability will not exceed [insert $50 or any lesser amount under 
agreement with the cardholder].

G-3--Long-Form Billing-Error Rights Model Form (Home-Equity Plans)

YOUR BILLING RIGHTS

KEEP THIS NOTICE FOR FUTURE USE

    This notice contains important information about your rights and 
our responsibilities under the Fair Credit Billing Act.

Notify Us in Case of Errors or Questions About Your Bill

    If you think your bill is wrong, or if you need more information 
about a transaction on your bill, write us [on a separate sheet] at 
[address] [the address listed on your bill]. Write to us as soon as 
possible. We must hear from you no later than 60 days after we sent 
you the first bill on which the error or problem appeared. [You may 
also contact us on the Web: [Creditor Web or e-mail address]] You 
can telephone us, but doing so will not preserve your rights.
    In your letter, give us the following information:
     Your name and account number.
     The dollar amount of the suspected error.
     Describe the error and explain, if you can, why you 
believe there is an error. If you need more information, describe 
the item you are not sure about.
    If you have authorized us to pay your credit card bill 
automatically from your savings or checking account, you can stop 
the payment on any amount you think is wrong. To stop the payment 
your letter must reach us three business days before the automatic 
payment is scheduled to occur.

Your Rights and Our Responsibilities After We Receive Your Written 
Notice

    We must acknowledge your letter within 30 days, unless we have 
corrected the error by then. Within 90 days, we must either correct 
the error or explain why we believe the bill was correct.
    After we receive your letter, we cannot try to collect any 
amount you question, or report you as delinquent. We can continue to 
bill you for the amount you question, including finance charges, and 
we can apply any unpaid amount against your credit limit. You do not 
have to pay any questioned amount while we are investigating, but 
you are still obligated to pay the parts of your bill that are not 
in question.
    If we find that we made a mistake on your bill, you will not 
have to pay any finance charges related to any questioned amount. If 
we didn't make a mistake, you may have to pay finance charges, and 
you will have to make up any missed payments on the questioned 
amount. In either case, we will send you a statement of the amount 
you owe and the date that it is due.
    If you fail to pay the amount that we think you owe, we may 
report you as delinquent.

[[Page 54233]]

However, if our explanation does not satisfy you and you write to us 
within ten days telling us that you still refuse to pay, we must 
tell anyone we report you to that you have a question about your 
bill. And, we must tell you the name of anyone we reported you to. 
We must tell anyone we report you to that the matter has been 
settled between us when it finally is.
    If we don't follow these rules, we can't collect the first $50 
of the questioned amount, even if your bill was correct.

Special Rule for Credit Card Purchases

    If you have a problem with the quality of property or services 
that you purchased with a credit card, and you have tried in good 
faith to correct the problem with the merchant, you may have the 
right not to pay the remaining amount due on the property or 
services.
    There are two limitations on this right:
    (a) You must have made the purchase in your home State or, if 
not within your home State within 100 miles of your current mailing 
address; and
    (b) The purchase price must have been more than $50.
    These limitations do not apply if we own or operate the 
merchant, or if we mailed you the advertisement for the property or 
services.

G-3(A)--Long-Form Billing-Error Rights Model Form (Plans Other Than 
Home-Equity Plans)

Your Billing Rights: Keep this Document for Future Use

    This notice tells you about your rights and our responsibilities 
under the Fair Credit Billing Act.

What To Do If You Find A Mistake On Your Statement

    If you think there is an error on your statement, write to us 
at:

[Creditor Name]
[Creditor Address]

[You may also contact us on the Web: [Creditor Web or e-mail 
address]]
    In your letter, give us the following information:

     Account information: Your name and account number.
     Dollar amount: The dollar amount of the suspected 
error.
     Description of problem: If you think there is an error 
on your bill, describe what you believe is wrong and why you believe 
it is a mistake.
    You must contact us:
     Within 60 days after the error appeared on your 
statement.
     At least 3 business days before an automated payment is 
scheduled, if you want to stop payment on the amount you think is 
wrong.
    You must notify us of any potential errors in writing [or 
electronically]. You may call us, but if you do we are not required 
to investigate any potential errors and you may have to pay the 
amount in question.

What Will Happen After We Receive Your Letter

    When we receive your letter, we must do two things:
    1. Within 30 days of receiving your letter, we must tell you 
that we received your letter. We will also tell you if we have 
already corrected the error.
    2. Within 90 days of receiving your letter, we must either 
correct the error or explain
    While we investigate whether or not there has been an error:
     We cannot try to collect the amount in question, or 
report you as delinquent on that amount.
     The charge in question may remain on your statement, 
and we may continue to charge you interest on that amount.
     While you do not have to pay the amount in question, 
you are responsible for the remainder of your balance.
     We can apply any unpaid amount against your credit 
limit.
    After we finish our investigation, one of two things will 
happen:
     If we made a mistake: You will not have to pay the 
amount in question or any interest or other fees related to that 
amount.
     If we do not believe there was a mistake: You will have 
to pay the amount in question, along with applicable interest and 
fees. We will send you a statement of the amount you owe and the 
date payment is due. We may then report you as delinquent if you do 
not pay the amount we think you owe.
    If you receive our explanation but still believe your bill is 
wrong, you must write to us within 10 days telling us that you still 
refuse to pay. If you do so, we cannot report you as delinquent 
without also reporting that you are questioning your bill. We must 
tell you the name of anyone to whom we reported you as delinquent, 
and we must let those organizations know when the matter has been 
settled between us.
    If we do not follow all of the rules above, you do not have to 
pay the first $50 of the amount you question even if your bill is 
correct.

Your Rights if You Are Dissatisfied With Your Credit Card Purchases

    If you are dissatisfied with the goods or services that you have 
purchased with your credit card, and you have tried in good faith to 
correct the problem with the merchant, you may have the right not to 
pay the remaining amount due on the purchase.
    To use this right, all of the following must be true:
    1. The purchase must have been made in your home State or within 
100 miles of your current mailing address, and the purchase price 
must have been more than $50. (Note: Neither of these are necessary 
if your purchase was based on an advertisement we mailed to you, or 
if we own the company that sold you the goods or services.)
    2. You must have used your credit card for the purchase. 
Purchases made with cash advances from an ATM or with a check that 
accesses your credit card account do not qualify.
    3. You must not yet have fully paid for the purchase.
    If all of the criteria above are met and you are still 
dissatisfied with the purchase, contact us in writing [or 
electronically] at:

[Creditor Name]
[Creditor Address]
[[Creditor Web or e-mail address]]

    While we investigate, the same rules apply to the disputed 
amount as discussed above. After we finish our investigation, we 
will tell you our decision. At that point, if we think you owe an 
amount and you do not pay, we may report you as delinquent.

G-4--Alternative Billing-Error Rights Model Form (Home-Equity Plans)

BILLING RIGHTS SUMMARY

In Case of Errors or Questions About Your Bill

    If you think your bill is wrong, or if you need more information 
about a transaction on your bill, write us [on a separate sheet] at 
[address] [the address shown on your bill] as soon as possible. [You 
may also contact us on the Web: [Creditor Web or e-mail address]] We 
must hear from you no later than 60 days after we sent you the first 
bill on which the error or problem appeared. You can telephone us, 
but doing so will not preserve your rights.
    In your letter, give us the following information:
     Your name and account number.
     The dollar amount of the suspected error.
     Describe the error and explain, if you can, why you 
believe there is an error. If you need more information, describe 
the item you are unsure about.
    You do not have to pay any amount in question while we are 
investigating, but you are still obligated to pay the parts of your 
bill that are not in question. While we investigate your question, 
we cannot report you as delinquent or take any action to collect the 
amount you question.

Special Rule for Credit Card Purchases

    If you have a problem with the quality of goods or services that 
you purchased with a credit card, and you have tried in good faith 
to correct the problem with the merchant, you may not have to pay 
the remaining amount due on the goods or services. You have this 
protection only when the purchase price was more than $50 and the 
purchase was made in your home State or within 100 miles of your 
mailing address. (If we own or operate the merchant, or if we mailed 
you the advertisement for the property or services, all purchases 
are covered regardless of amount or location of purchase.)

G-4(A)--Alternative Billing-Error Rights Model Form (Plans Other Than 
Home-Equity Plans)

What To Do if You Think You Find a Mistake on Your Statement

    If you think there is an error on your statement, write to us 
at:

[Creditor Name]
[Creditor Address]

[You may also contact us on the Web: [Creditor Web or e-mail 
address]]

    In your letter, give us the following information:

[[Page 54234]]

     Account information: Your name and account number.
     Dollar amount: The dollar amount of the suspected 
error.
     Description of Problem: If you think there is an error 
on your bill, describe what you believe is wrong and why you believe 
it is a mistake.
    You must contact us within 60 days after the error appeared on 
your statement.
    You must notify us of any potential errors in writing [or 
electronically] . You may call us, but if you do we are not required 
to investigate any potential errors and you may have to pay the 
amount in question.
    While we investigate whether or not there has been an error, the 
following are true:
     We cannot try to collect the amount in question, or 
report you as delinquent on that amount.
     The charge in question may remain on your statement, 
and we may continue to charge you interest on that amount. But, if 
we determine that we made a mistake, you will not have to pay the 
amount in question or any interest or other fees related to that 
amount.
     While you do not have to pay the amount in question, 
you are responsible for the remainder of your balance.
     We can apply any unpaid amount against your credit 
limit.

Your Rights if You Are Dissatisfied With Your Credit Card Purchases

    If you are dissatisfied with the goods or services that you have 
purchased with your credit card, and you have tried in good faith to 
correct the problem with the merchant, you may have the right not to 
pay the remaining amount due on the purchase.
    To use this right, all of the following must be true:
    1. The purchase must have been made in your home State or within 
100 miles of your current mailing address, and the purchase price 
must have been more than $50. (Note: Neither of these are necessary 
if your purchase was based on an advertisement we mailed to you, or 
if we own the company that sold you the goods or services.)
    2. You must have used your credit card for the purchase. 
Purchases made with cash advances from an ATM or with a check that 
accesses your credit card account do not qualify.
    3. You must not yet have fully paid for the purchase.
    If all of the criteria above are met and you are still 
dissatisfied with the purchase, contact us in writing [or 
electronically] at:

[Creditor Name]
[Creditor Address]
[[Creditor Web address]]

    While we investigate, the same rules apply to the disputed 
amount as discussed above. After we finish our investigation, we 
will tell you our decision. At that point, if we think you owe an 
amount and you do not pay we may report you as delinquent.
* * * * *
BILLING CODE 6210-01-P

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BILLING CODE 6210-01-C

G-11--Applications and Solicitations Made Available to the General 
Public Model Clauses

(a) Disclosure of Required Credit Information

    The information about the costs of the card described in this 
[application]/[solicitation] is accurate as of (month/year). This 
information may have changed after that date. To find out what may 
have changed, [call us at (telephone number)][write to us at 
(address)].

(b) No Disclosure of Credit Information

    There are costs associated with the use of this card. To obtain 
information about these costs, call us at (telephone number) or 
write to us at (address).

G-12 [Reserved]

G-13(A)--Change in Insurance Provider Model Form (Combined Notice)

    The credit card account you have with us is insured. This is to 
notify you that we plan to replace your current coverage with 
insurance coverage from a different insurer. If we obtain insurance 
for your account from a different insurer, you may cancel the 
insurance.
[Your premium rate will increase to $ -- per --.]
[Your coverage will be affected by the following:
    [ ] The elimination of a type of coverage previously provided to 
you. [(explanation)] [See -- of the attached policy for details.]
    [ ] A lowering of the age at which your coverage will terminate 
or will become more restrictive. [(explanation)] [See -- of the 
attached policy or certificate for details.]
    [ ] A decrease in your maximum insurable loan balance, maximum 
periodic benefit payment, maximum number of payments, or any other 
decrease in the dollar amount of your coverage or benefits. 
[(explanation)] [See -- of the attached policy or certificate for 
details.]
    [ ] A restriction on the eligibility for benefits for you or 
others. [(explanation)] [See -- of the attached policy or 
certificate for details.]
    [ ] A restriction in the definition of ``disability'' or other 
key term of coverage. [(explanation)] [See -- of the attached policy 
or certificate for details.]
    [ ] The addition of exclusions or limitations that are broader 
or other than those under the current coverage. [(explanation)] [See 
-- of the attached policy or certificate for details.]
    [ ] An increase in the elimination (waiting) period or a change 
to nonretroactive coverage. [(explanation)] [See -- of the attached 
policy or certificate for details).] [The name and mailing address 
of the new

[[Page 54239]]

insurer providing the coverage for your account is (name and 
address).]

G-13(B)--Change in Insurance Provider Model Form

    We have changed the insurer providing the coverage for your 
account. The new insurer's name and address are (name and address). 
A copy of the new policy or certificate is attached.
    You may cancel the insurance for your account.
* * * * *

G-16(A) Debt Suspension Model Clause

    Please enroll me in the optional [insert name of program], and 
bill my account the fee of [how cost is determined]. I understand 
that enrollment is not required to obtain credit. I also understand 
that depending on the event, the protection may only temporarily 
suspend my duty to make minimum payments, not reduce the balance I 
owe. I understand that my balance will actually grow during the 
suspension period as interest continues to accumulate.
[To Enroll, Sign Here]/[To Enroll, Initial Here]. X ----------------
----

G-16(B) Debt Suspension Sample

    Please enroll me in the optional [name of program], and bill my 
account the fee of $.83 per $100 of my month-end account balance. I 
understand that enrollment is not required to obtain credit. I also 
understand that depending on the event, the protection may only 
temporarily suspend my duty to make minimum payments, not reduce the 
balance I owe. I understand that my balance will actually grow 
during the suspension period as interest continues to accumulate.
[To Enroll, Initial Here]. X --------------------
BILLING CODE 6210-01-P

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Form G-18(A) Periodic Statement Transactions; Interest Charges; Fees 
Sample

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G-18(B)--Late Payment Fee Sample

    Late Payment Warning: If we do not receive your minimum payment 
by the date listed above, you may have to pay a $35 late fee and 
your APRs may be increased up to the Penalty APR of 28.99%.

Form G-18(C)(1) Minimum Payment Warming (When Amortization Occurs and 
Minimum Payment Repayment is Greater than Three Years)
[GRAPHIC] [TIFF OMITTED] TP21OC09.010


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Form G-18(C)(2) Minimum Payment Warning (When Amortization Occurs and 
Minimum Payment Repayment Estimate is Equal to or less than Three 
Years);
[GRAPHIC] [TIFF OMITTED] TP21OC09.011

Form G-18(C)(3) Minimum Payment Warning (When Negative or No 
Amortization Occurs);
[GRAPHIC] [TIFF OMITTED] TP21OC09.012


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Form G-18(D) Periodic Statement New Balance, Due Date, late Payment and 
Minimum Payment Sample (Credit Cards)
[GRAPHIC] [TIFF OMITTED] TP21OC09.013

G-18(E) [Reserved.]

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G-18(F) Periodic Statement Form
[GRAPHIC] [TIFF OMITTED] TP21OC09.014


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G-18(F) Periodic Statement Form (contd.)
[GRAPHIC] [TIFF OMITTED] TP21OC09.015


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G-18(G) Periodic Statement Form
[GRAPHIC] [TIFF OMITTED] TP21OC09.016


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G-18(G) Periodic Statement Form (contd.)
[GRAPHIC] [TIFF OMITTED] TP21OC09.017


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G-18(H)--Deferred Interest Periodic Statement Clause

    [You must pay your promotional balance in full by [date] to 
avoid paying accrued interest charges.]

Form G-19 Checks Accessing a Credit Card Sample
[GRAPHIC] [TIFF OMITTED] TP21OC09.018

Form G-20 Change- in-Terms Sample (Increase Annual Percentage Rate)
[GRAPHIC] [TIFF OMITTED] TP21OC09.019

Form G-21 Change-in-Terms Sample (Increase in Fees)
[GRAPHIC] [TIFF OMITTED] TP21OC09.020


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Form G-22 Penalty Rate Increase Sample (Payment 60 or Fewer Days Late)
[GRAPHIC] [TIFF OMITTED] TP21OC09.021

Form G-23 Penalty Rate Increase Sample (Payment More Than 60 Days Late)
[GRAPHIC] [TIFF OMITTED] TP21OC09.022

BILLING CODE 6210-01-C

G-24--Deferred Interest Offer Clauses

(a) For Credit Card Accounts Under an Open-End (Not Home-Secured) 
Consumer Credit Plan

    [Interest will be charged to your account from the purchase date 
if the purchase balance is not paid in full within the/by [deferred 
interest period/date] or if you make a late payment.]

(b) For Other Open-End Plans

    [Interest will be charged to your account from the purchase date 
if the purchase balance is not paid in full within the/by [deferred 
interest period/date] or if your account is otherwise in default.]

G-25(A)--Consent Form for Over-the-Credit Limit Transactions

Your Right to Request Over-the-Credit Limit Coverage

    Unless you tell us otherwise, we will decline any transaction 
that causes you to go over your credit limit. If you want us to 
authorize these transactions, you can request over-the-credit limit 
coverage.
    If you have over-the-credit limit coverage and you go over your 
credit limit, we will charge you a fee of $XX and may increase your 
APRs to the Penalty APR of XX.XX%. You will only pay one fee per 
billing cycle, even if you go over your limit multiple times in the 
same cycle.
    Even if you request over-the-credit limit coverage, in some 
cases we may still decline a transaction that would cause you to go 
over your limit, such as if you are past due or significantly over 
your credit limit.
    If you want us to authorize transactions that go over your 
credit limit, please:
--Call us at [telephone number];
--Visit [Web site]; or
--Check the box below, and return the form to us at [address].
    ----I want you to authorize transactions that exceed my credit 
limit. I understand that if I go over my credit limit, I will be 
charged a fee of $---- and my APRs may be increased.

G-25(B)--Revocation Notice for Periodic Statement Regarding Over-the-
Credit Limit Transactions

    You currently have over-the-credit limit coverage on your 
account, which means that we will pay transactions that cause you to 
go over your credit limit. If you do go over your credit limit, we 
will charge you a fee of $XX and your APRs may be increased. To 
remove over-the-credit-limit coverage from your account, call us at 
1-800-xxxxxxx or visit http://www.xxxxxxx.com. You may also write us 
at: [insert address].
    23. Appendix H to part 226 is amended by revising the table of 
contents, and adding new forms H-17(A) and H-17(B) to read as follows:

Appendix H to Part 226--Closed-End Model Forms and Clauses

H-1 Credit Sale Model Form (Sec.  226.18)
H-2 Loan Model Form (Sec.  226.18)
H-3 Amount Financed Itemization Model Form (Sec.  226.18(c))
H-4(A) Variable-Rate Model Clauses (Sec.  226.18(f)(1))
H-4(B) Variable-Rate Model Clauses (Sec.  226.18(f)(2))
H-4(C) Variable-Rate Model Clauses (Sec.  226.19(b))
H-4(D) Variable-Rate Model Clauses (Sec.  226.20(c))
H-5 Demand Feature Model Clauses (Sec.  226.18(i))
H-6 Assumption Policy Model Clause (Sec.  226.18(q))
H-7 Required Deposit Model Clause (Sec.  226.18(r))
H-8 Rescission Model Form (General) (Sec.  226.23)
H-9 Rescission Model Form (Refinancing (with Original Creditor)) 
(Sec.  226.23)
H-10 Credit Sale Sample
H-11 Installment Loan Sample
H-12 Refinancing Sample
H-13 Mortgage with Demand Feature Sample
H-14 Variable-Rate Mortgage Sample (Sec.  226.19(b))
H-15 Graduated-Payment Mortgage Sample
H-16 Mortgage Sample
H-17(A) Debt Suspension Model Clause
H-17(B) Debt Suspension Sample
* * * * *

H-17(A) Debt Suspension Model Clause

    Please enroll me in the optional [insert name of program], and 
bill my account the fee of [insert charge for the initial term of 
coverage]. I understand that enrollment is not required to obtain 
credit. I also understand that depending on the event, the 
protection may only temporarily suspend my duty to make minimum 
payments, not reduce the balance I owe. I understand that my balance 
will actually grow during the suspension period as interest 
continues to accumulate.
    [To Enroll, Sign Here]/[To Enroll, Initial Here]. X------------
----------------------------

H-17(B) Debt Suspension Sample

    Please enroll me in the optional [name of program], and bill my 
account the fee of $200.00. I understand that enrollment is not 
required to obtain credit. I also understand that depending on the 
event, the protection may only temporarily suspend my duty to make 
minimum payments, not reduce the

[[Page 54253]]

balance I owe. I understand that my balance will actually grow 
during the suspension period as interest continues to accumulate.
    To Enroll, Initial Here. X--------------------------------------
--

    24. Appendix M1 is added to part 226 to read as follows:

Appendix M1 to Part 226--Repayment Disclosures

    (a) Definitions. (1) ``Promotional terms'' means terms of a 
cardholder's account that will expire in a fixed period of time, as 
set forth by the card issuer.
    (2) ``Deferred interest or similar plan'' means a plan where a 
consumer will not be obligated to pay interest that accrues on 
balances or transactions if those balances or transactions are paid 
in full prior to the expiration of a specified period of time.
    (b) Calculating minimum payment repayment estimates.
    (1) Minimum payment formulas. When calculating the minimum 
payment repayment estimate, credit card issuers must use the minimum 
payment formula(s) that apply to a cardholder's account. If more 
than one minimum payment formula applies to an account, the issuer 
must apply each minimum payment formula to the portion of the 
balance to which the formula applies. In this case, the issuer must 
disclose the longest repayment period calculated. For example, 
assume that an issuer uses one minimum payment formula to calculate 
the minimum payment amount for a general revolving feature, and 
another minimum payment formula to calculate the minimum payment 
amount for special purchases, such as a ``club plan purchase.'' 
Also, assume that based on a consumer's balances in these features 
and the annual percentage rates that apply to such features, the 
repayment period calculated pursuant to this Appendix for the 
general revolving feature is 5 years, while the repayment period 
calculated for the special purchase feature is 3 years. This issuer 
must disclose 5 years as the repayment period for the entire balance 
to the consumer. If any promotional terms related to payments apply 
to a cardholder's account, such as a deferred billing plan where 
minimum payments are not required for 12 months, credit card issuers 
may assume no promotional terms apply to the account.
    (2) Annual percentage rate. When calculating the minimum payment 
repayment estimate, a credit card issuer must use the annual 
percentage rates that apply to a cardholder's account, based on the 
portion of the balance to which the rate applies. If any promotional 
terms related to annual percentage rates apply to a cardholder's 
account, other than deferred interest or similar plans, a credit 
card issuer in calculating the minimum payment repayment estimate 
must apply the promotional annual percentage rate(s) until it 
expires and then must apply the rate that applies after the 
promotional rate(s) expires. If the rate that applies after the 
promotional rate(s) expires is a variable rate, a card issuer must 
calculate that rate based on the applicable index or formula. This 
variable rate is accurate if it was in effect within the last 30 
days before the minimum payment repayment estimate is provided. For 
deferred interest plans or similar plans, if minimum payments under 
the deferred interest or similar plan will repay the balances or 
transactions in full prior to the expiration of the specified period 
of time, a card issuer must assume that the consumer will not be 
obligated to pay the accrued interest. This means, in calculating 
the minimum payment repayment estimate, the card issuer must apply a 
zero percent annual percentage rate to the balance subject to the 
deferred interest or similar plan. If, however, minimum payments 
under the deferred interest plan or similar plan may not repay the 
balances or transactions in full prior to the expiration of the 
specified period of time, a credit card issuer must assume that a 
consumer will not repay the balances or transactions in full prior 
to the expiration of the specified period of time and thus the 
consumer will be obligated to pay the accrued interest. This means, 
in calculating the minimum payment repayment estimate, the card 
issuer must apply the annual percentage rate at which interest is 
accruing to the balance subject to the deferred interest or similar 
plan.
    (3) Beginning balance. When calculating the minimum payment 
repayment estimate, a credit card issuer must use as the beginning 
balance the outstanding balance on a consumer's account as of the 
closing date of the last billing cycle. When calculating the minimum 
payment repayment estimate, a credit card issuer may round the 
beginning balance as described above to the nearest whole dollar.
    (4) Assumptions. When calculating the minimum payment repayment 
estimate, a credit card issuer for each of the terms below, may 
either make the following assumption about that term, or use the 
account term that applies to a consumer's account.
    (i) Only minimum monthly payments are made each month. In 
addition, minimum monthly payments are made each month--for example, 
a debt cancellation or suspension agreement, or skip payment feature 
does not apply to the account.
    (ii) No additional extensions of credit are obtained, such as 
new purchases, transactions, fees, charges or other activity. No 
refunds or rebates are given.
    (iii) The annual percentage rate or rates that apply to a 
cardholder's account will not change, through either the operation 
of a variable rate or the change to a rate, except as provided in 
paragraph (b)(2) of this Appendix. For example, if a penalty annual 
percentage rate currently applies to a consumer's account, an issuer 
may assume that the penalty annual percentage rate will apply to the 
consumer's account indefinitely, even if the consumer may 
potentially return to a non-penalty annual percentage rate in the 
future under the account agreement.
    (iv) There is no grace period.
    (v) The final payment pays the account in full (i.e., there is 
no residual finance charge after the final month in a series of 
payments).
    (vi) The average daily balance method is used to calculate the 
balance.
    (vii) All months are the same length and leap year is ignored. A 
monthly or daily periodic rate may be assumed. If a daily periodic 
rate is assumed, the issuer may either assume (1) a year is 365 days 
long, and all months are 30.41667 days long, or (2) a year is 360 
days long, and all months are 30 days long.
    (viii) Payments are credited on the last day of the month.
    (ix) Payments are allocated to lower annual percentage rate 
balances before higher annual percentage rate balances.
    (x) The account is not past due and the account balance does not 
exceed the credit limit.
    (xi) When calculating the minimum payment repayment estimate, 
the assumed payments, current balance and interest charges for each 
month may be rounded to the nearest cent, as shown in Appendix M2 to 
this part.
    (5) Tolerance. A minimum payment repayment estimate shall be 
considered accurate if it is not more than 2 months above or below 
the minimum payment repayment estimate determined in accordance with 
the guidance in this Appendix (prior to rounding described in Sec.  
226.7(b)(12)(i)(B)). For example, assume the minimum payment 
repayment estimate calculated using the guidance in this Appendix is 
28 months (2 years, 4 months), and the minimum payment repayment 
estimate calculated by the issuer is 30 months (2 years, 6 months). 
The minimum payment repayment estimate should be disclosed as 2 
years, due to the rounding rule set forth in Sec.  
226.7(b)(12)(i)(B). Nonetheless, based on the 30 month estimate, the 
issuer disclosed 3 years, based on that rounding rule. The issuer 
would be in compliance with this guidance by disclosing 3 years, 
instead of 2 years, because the issuer's estimate is within the 2 
months' tolerance, prior to rounding. In addition, even if an 
issuer's estimate is more than 2 months above or below the minimum 
payment repayment estimate calculated using the guidance in this 
Appendix, so long as the issuer discloses the correct number of 
years to the consumer based on the rounding rule set forth in Sec.  
226.7(b)(12)(i)(B), the issuer would be in compliance with this 
guidance. For example, assume the minimum payment repayment estimate 
calculated using the guidance in this Appendix is 32 months (2 
years, 8 months), and the minimum payment repayment estimate 
calculated by the issuer is 38 months (3 years, 2 months). Under the 
rounding rule set forth in Sec.  226.7(b)(12)(i)(B), both of these 
estimates would be rounded and disclosed to the consumer as 3 years. 
Thus, if the issuer disclosed 3 years to the consumer, the issuer 
would be in compliance with this guidance even though the minimum 
payment repayment estimate calculated by the issuer is outside the 2 
months' tolerance amount.
    (c) Calculating the minimum payment total cost estimate. When 
calculating the minimum payment total cost estimate, a credit card 
issuer must total the dollar amount of the interest and principal 
that the consumer would pay if he or she made minimum payments for 
the length of time calculated as the minimum payment repayment 
estimate under paragraph (b) of this Appendix. The minimum payment 
total cost estimate is deemed to be accurate if it

[[Page 54254]]

is based on a minimum payment repayment estimate that is within the 
tolerance guidance set forth in paragraph (b)(5) of this Appendix. 
For example, assume the minimum payment repayment estimate 
calculated using the guidance in this Appendix is 28 months (2 
years, 4 months), and the minimum payment repayment estimate 
calculated by the issuer is 30 months (2 years, 6 months). The 
minimum payment total cost estimate will be deemed accurate even if 
it is based on the 30 month estimate for length of repayment, 
because the issuer's minimum payment repayment estimate is within 
the 2 months' tolerance, prior to rounding. In addition, assume the 
minimum payment repayment estimate calculated under this Appendix is 
32 months (2 years, 8 months), and the minimum payment repayment 
estimate calculated by the issuer is 38 months (3 years, 2 months). 
Under the rounding rule set forth in Sec.  226.7(b)(12)(i)(B), both 
of these estimates would be rounded and disclosed to the consumer as 
3 years. If the issuer based the minimum payment total cost estimate 
on 38 months (or any other minimum payment repayment estimate that 
would be rounded to 3 years), the minimum payment total cost 
estimate would be deemed to be accurate.
    (d) Calculating the estimated monthly payment for repayment in 
36 months. (1) In general. When calculating the estimated monthly 
payment for repayment in 36 months, a credit card issuer must 
calculate the estimated monthly payment amount that would be 
required to pay off the outstanding balance shown on the statement 
within 36 months, assuming the consumer paid the same amount each 
month for 36 months.
    (2) Weighted annual percentage rate. In calculating the 
estimated monthly payment for repayment in 36 months, an issuer must 
use a weighted annual percentage rate that is based on the annual 
percentage rates that apply to a cardholder's account and the 
portion of the balance to which the rate applies, as shown in 
Appendix M2 to this part. If any promotional terms related to annual 
percentage rates apply to a cardholder's account, other than 
deferred interest plans or similar plans, in calculating the 
weighted annual percentage rate, the issuer must calculate a 
weighted average of the promotional rate and the rate that will 
apply after the promotional rate expires based on the percentage of 
36 months each rate will apply, as shown in Appendix M2 to this 
part. For deferred interest plans or similar plans, if minimum 
payments under the deferred interest or similar plan will repay the 
balances or transactions in full prior to the expiration of the 
specified period of time, a card issuer must assume that the 
consumer will not be obligated to pay the accrued interest. This 
means, in calculating the weighted annual percentage rate, the card 
issuer must apply a zero percent annual percentage rate to the 
balance subject to the deferred interest or similar plan. If, 
however, minimum payments under the deferred interest plan or 
similar plan may not repay the balances or transactions in full 
prior to the expiration of the specified period of time, a credit 
card issuer in calculating the weighted annual percentage rate must 
assume that a consumer will not repay the balances or transactions 
in full prior to the expiration of the specified period of time and 
thus the consumer will be obligated to pay the accrued interest. 
This means, in calculating the weighted annual percentage rate, the 
card issuer must apply the annual percentage rate at which interest 
is accruing to the balance subject to the deferred interest or 
similar plan.
    (3) Assumptions. In calculating the estimated monthly payment 
for repayment in 36 months, a card issuer must use the same terms 
described in paragraph (b) of this Appendix, as appropriate.
    (e) Calculating the total cost estimate for repayment in 36 
months. When calculating the total cost estimate for repayment in 36 
months, a credit card issuer must total the dollar amount of the 
interest and principal that the consumer would pay if he or she made 
the estimated monthly payment calculated under paragraph (d) of this 
Appendix each month for 36 months.
    (f) Calculating the savings estimate for repayment in 36 months. 
When calculating the saving estimate for repayment in 36 months, a 
credit card issuer must subtract the total cost estimate for 
repayment in 36 months calculated under paragraph (e) of this 
Appendix (rounded to the nearest whole dollar as set forth in Sec.  
226.7(b)(12)(i)(F)(3)) from the minimum payment total cost estimate 
calculated under paragraph (c) of this Appendix (rounded to the 
nearest whole dollar as set forth in Sec.  226.7(b)(12)(i)(C)).
    24a. Appendix M2 is added to part 226 to read as follows:

Appendix M2 to Part 226--Sample Calculations of Repayment Disclosures

    The following is an example of how to calculate the minimum 
payment repayment estimate, the minimum payment total cost estimate, 
the estimated monthly payment for repayment in 36 months, the total 
cost estimate for repayment in 36 months, and the savings estimate 
for repayment in 36 month using the guidance in Appendix M1 to this 
part where three annual percentage rates apply (where one of the 
rates is a promotional APR), the total outstanding balance is $1000, 
and the minimum payment formula is 2 percent of the outstanding 
balance or $20, whichever is greater. The following calculation is 
written in SAS code.

data one;
/*

    Note: pmt01 = estimated monthly payment to repay balance in 36 
months

sumpmts36 = sum of payments for repayment in 36 months
month = number of months to repay total balance if making only 
minimum payments
pmt = minimum monthly payment
fc = monthly finance charge
sumpmts = sum of payments for minimum payments

*/
* inputs;

* annual percentage rates; apr1= 0.0; apr2=0.17; apr3=0.21; * insert 
in ascending order;
* outstanding balances; cbal1=500; cbal2=250; cbal3=250;
* dollar minimum payment; dmin=20;
* percent minimum payment; pmin=0.02; * (0.02+perrate);

* promotional rate information;
* last month for promotional rate; expm=6; * = 0 if no promotional 
rate;
* regular rate; rrate=.17; * = 0 if no promotional rate;

array apr(3); array perrate(3);

days=365/12; * calculate days in month;

* calculate estimated monthly payment to pay off balances in 36 
months, and total cost of repaying balance in 36 months;

array xperrate(3);
do I=1 to 3;
xperrate(I)=(apr(I)/365)*days; * calculate periodic rate; end;
if expm gt 0 then xperrate1a=(expm/36)*xperrate1+(1-(expm/
36))*(rrate/365)*days; else xperrate1a=xperrate1;

tbal=cbal1+cbal2+cbal3;
perrate36=(cbal1*xperrate1a+cbal2*xperrate2+cbal3*xperrate3)/
(cbal1+cbal2+cbal3);

* months to repay; dmonths=36;

* initialize counters for sum of payments for repayment in 36 
months;

Sumpmts36=0;

pvaf=(1-(1+perrate36)**-dmonths)/perrate36; * calculate present 
value of annuity factor;
pmt01=round(tbal/pvaf,0.01); * calculate monthly payment for 
designated number of months;
sumpmts36 = pmt01 * 36;

* calculate time to repay and total cost of making minimum payments 
each month;
* initialize counter for months, and sum of payments;

month=0;
sumpmts=0;

do I=1 to 3;
perrate(I)=(apr(I)/365)*days; * calculate periodic rate; end;
put perrate1= perrate2= perrate3=;

eins:

month=month+1; * increment month counter;
pmt=round(pmin*tbal,0.01); * calculate payment as percentage of 
balance;
if month ge expm and expm ne 0 then perrate1=(rrate/365)*days;

if pmt lt dmin then pmt=dmin; * set dollar minimum payment;

array xxxbal(3); array cbal(3);
do I=1 to 3;
xxxbal(I)=round(cbal(I)*(1+perrate(I)),0.01);
end;

fc=xxxbal1+xxxbal2+xxxbal3-tbal;

if pmt gt (tbal+fc) then do;
do I=1 to 3;
if cbal(I) gt 0 then pmt=round(cbal(I)*(1+perrate(I)),0.01); * set 
final payment amount;
end;
end;

if pmt le xxxbal1 then do;
cbal1=xxxbal1-pmt;
cbal2=xxxbal2;
cbal3=xxxbal3;
end;

if pmt gt xxxbal1 and xxxbal2 gt 0 and pmt le (xxxbal1+xxxbal2) then 
do;

[[Page 54255]]

    cbal2=xxxbal2-(pmt-xxxbal1);
    cbal1=0;
    cbal3=xxxbal3;
    end;

if pmt gt xxxbal2 and xxxbal3 gt 0 then do;
    cbal3=xxxbal3-(pmt-xxxbal1-xxxbal2);
    cbal2=0;
    end;

sumpmts=sumpmts+pmt; * increment sum of payments;
tbal=cbal1+cbal2+cbal3; * calculate new total balance;

* print month, balance, payment amount, and finance charge;
put month= tbal= cbal1= cbal2= cbal3= pmt= fc= ;

if tbal gt 0 then go to eins; * go to next month if balance is 
greater than zero;

* initialize total cost savings;
savtot=0;
savtot= round(sumpmts,1)-round (sumpmts36,1);

* print number of months to repay debt if minimum payments made, 
final balance (zero), total cost if minimum payments made, estimated 
monthly payment for repayment in 36 months, total cost for repayment 
in 36 months, and total savings if repaid in 36 months;

put title=' ';
put title='number of months to repay debt if minimum payment made, 
final balance, total cost if minimum payments made, estimated 
monthly payment for repayment in 36 months, total cost for repayment 
in 36 months, and total savings if repaid in 36 months';
put month= tbal= sumpmts= pmt01= sumpmts36= savtot=;
put title=' ';
run;

    25. Appendix N to part 226 is added to read as follows:

Appendix N--Internet Posting of Credit Card Agreements

1. Credit Card Agreements Submitted to the Board Under Sec.  226.58(d)

    (a) Each agreement submitted to the Board must contain the 
provisions of the agreement and the pricing information in effect as 
of the last business day of the preceding calendar quarter.
    (b) Information that is not uniform for all cardholders under an 
agreement, but that instead may vary from one cardholder to another 
depending upon a cardholder's creditworthiness, State of residence, 
or other factors, such as the pricing information, must be set forth 
in an addendum to the agreement. The addendum must provide the 
information either by setting forth all the possible variations 
(such as purchase APRs of 6.9 percent, 8.9 percent, 10.9 percent, or 
12.9 percent), or by providing a range (such as purchase APR ranging 
from 6.9 percent to 12.9 percent).
    (c) Card issuers are not required to submit any disclosures 
required by State or Federal law, such as affiliate marketing 
notices, privacy policies, or disclosures under the E-Sign Act, 
except to the extent that those disclosures are included in the 
provisions of the agreement or the pricing information. Similarly, 
card issuers are not required to submit solicitation materials or 
periodic statements.
    (d) Agreements must not include any personally identifiable 
information relating to any cardholder, such as name, address, 
telephone number, or account number.
    (e) Issuers may not provide provisions of the agreement or 
pricing information in the form of change-in-terms notices or riders 
(other than the single addendum described above, if applicable). 
Changes in provisions or pricing information must be integrated into 
the body of the agreement (or into the single addendum described 
above, if applicable).

2. Posting of Agreements Offered to the Public on Card Issuer's Web 
Site Under Proposed Sec.  226.58(f)(1)

    (a) Agreements may be posted in any electronic format that is 
readily usable by the general public.
    (b) The content of the agreements posted on the issuer's Web 
site must the same as those submitted to the Board, as specified in 
paragraph 1. above.
    (c) The card issuer must update the agreements posted on its Web 
site at least as frequently as the quarterly schedule required for 
submission of agreements to the Board under Sec.  226.58(d). If the 
issuer chooses to update the agreements on its Web site more 
frequently, the agreements posted on the issuer's Web site may 
contain the provisions of the agreement and the pricing information 
in effect as of a date other than the last business day of the 
preceding calendar quarter.
    (d) The agreements posted on the issuer's Web site must be 
placed in a location that is prominent and easily accessible by the 
public and must be presented in a clear and legible typeface.

3. Availability of Agreements for All Open Accounts under Sec.  
226.58(f)(2)

    (a) If the card issuer posts an agreement on its Web site under 
Sec.  226.58(f)(2)(i), the agreement may be posted in any electronic 
format this is readily usable by the general public and must be 
placed in a location that is prominent and easily accessible to the 
cardholder.
    (b) The content of such agreements (whether posted on the card 
issuer's Web site under Sec.  226.58(f)(2)(i) or made available upon 
the cardholder's request under Sec.  226.58(f)(2)(ii)) must conform 
to the content requirements for agreements submitted to the Board, 
as specified in paragraph 1. above, except that each agreement: (1) 
Must set forth the specific provisions and pricing information 
applicable to the particular cardholder; and (2) may contain 
personally identifiable information relating to the cardholder, such 
as name, address, telephone number, or account number, provided that 
the issuer takes appropriate measures to make the agreement 
accessible only to the cardholder or other authorized persons. 
Pricing information may be integrated into the text of the agreement 
or provided in a single attached addendum. All agreements must be 
presented in a clear and legible typeface.
    (c) Agreements must contain provisions and pricing information 
that is complete and accurate as of a date no more than 60 days 
prior to: (1) The date on which the agreement is posted on the card 
issuer's Web site under Sec.  226.58(f)(2)(i); or (2) the date the 
cardholder's request is received under Sec.  226.58(f)(2)(ii).
    (d) Issuers may not provide provisions of the agreement or 
pricing information in the form of change-in-terms notices or riders 
(other than the single addendum described above, if applicable). 
Changes in provisions or pricing information must be integrated into 
the body of the agreement (or into the single addendum described 
above, if applicable).
    26. In Supplement I to Part 226:
    A. Revise the Introduction.
    B. Revise Subpart A.
    C. In Subpart B, revise sections 226.5 and 226.5a and sections 
226.6 through 226.14 and section 226.16.
    D. Under Section 226.5b--Requirements for Home-equity Plans, under 
5b(a) Form of Disclosures, under 5b(a)(1) General, paragraph 1. is 
revised.
    E. Under Section 226.5b--Requirements for Home-equity Plans, under 
5b(f) Limitations on Home-equity Plans, under 5b(f)(3)(vi), paragraph 
4. is revised.
    F. Under Section 226.26--Use of Annual Percentage Rate in Oral 
Disclosures, under 26(a) Open-end credit., paragraph 1. is revised.
    G. Under Section 226.27--Language of Disclosures, paragraph 1. is 
revised.
    H. Under Section 226.28--Effect on State Laws, under 28(a) 
Inconsistent disclosure requirements., paragraph 6. is revised.
    I. Under Section 226.30--Limitation on Rates, paragraph 8. is 
revised and paragraph 13. is deleted.
    J. Add a new Subpart G, consisting of sections 226.51 through 
226.58.
    K. Revise Appendix F.
    L. Amend Appendix G by revising paragraphs 1. through 3. and 5. 
through 6. and adding paragraphs 8. through 12.
    M. Remove the References paragraph at the end of sections 226.1, 
226.2, 226.3, 226.4, 226.5, 226.6, 226.7, 226.8, 226.9, 226.10, 226.11, 
226.12, 226.13, 226.14, 226.16, and Appendix F.

Supplement I to Part 226--Official Staff Interpretations

Introduction

    1. Official status. This commentary is the vehicle by which the 
staff of the Division of Consumer and Community Affairs of the Federal 
Reserve Board issues official staff interpretations of Regulation Z. 
Good faith compliance with this commentary affords protection from 
liability under 130(f) of the Truth in Lending Act. Section 130(f) (15 
U.S.C. 1640) protects creditors from

[[Page 54256]]

civil liability for any act done or omitted in good faith in conformity 
with any interpretation issued by a duly authorized official or 
employee of the Federal Reserve System.
    2. Procedure for requesting interpretations. Under appendix C of 
the regulation, anyone may request an official staff interpretation. 
Interpretations that are adopted will be incorporated in this 
commentary following publication in the Federal Register. No official 
staff interpretations are expected to be issued other than by means of 
this commentary.
    3. Rules of construction. (a) Lists that appear in the commentary 
may be exhaustive or illustrative; the appropriate construction should 
be clear from the context. In most cases, illustrative lists are 
introduced by phrases such as ``including, but not limited to,'' 
``among other things,'' ``for example,'' or ``such as.''
    (b) Throughout the commentary, reference to ``this section'' or 
``this paragraph'' means the section or paragraph in the regulation 
that is the subject of the comment.
    4. Comment designations. Each comment in the commentary is 
identified by a number and the regulatory section or paragraph which it 
interprets. The comments are designated with as much specificity as 
possible according to the particular regulatory provision addressed. 
For example, some of the comments to Sec.  226.18(b) are further 
divided by subparagraph, such as comment 18(b)(1)-1 and comment 
18(b)(2)-1. In other cases, comments have more general application and 
are designated, for example, as comment 18-1 or comment 18(b)-1. This 
introduction may be cited as comments I-1 through I-4. Comments to the 
appendices may be cited, for example, as comment app. A-1.

Subpart A--General


Sec.  226.1  Authority, Purpose, Coverage, Organization, Enforcement 
and Liability.

    1(c) Coverage.
    1. Foreign applicability. Regulation Z applies to all persons 
(including branches of foreign banks and sellers located in the United 
States) that extend consumer credit to residents (including resident 
aliens) of any State as defined in Sec.  226.2. If an account is 
located in the United States and credit is extended to a U.S. resident, 
the transaction is subject to the regulation. This will be the case 
whether or not a particular advance or purchase on the account takes 
place in the United States and whether or not the extender of credit is 
chartered or based in the United States or a foreign country. For 
example, if a U.S. resident has a credit card account located in the 
consumer's State issued by a bank (whether U.S. or foreign-based), the 
account is covered by the regulation, including extensions of credit 
under the account that occur outside the United States. In contrast, if 
a U.S. resident residing or visiting abroad, or a foreign national 
abroad, opens a credit card account issued by a foreign branch of a 
U.S. bank, the account is not covered by the regulation.
    1(d) Organization.
    Paragraph (1)(d)(5).
    1. Effective dates. The Board's revisions to Regulation Z published 
on July 30, 2008 (the ``final rules''), apply to covered loans 
(including refinance loans and assumptions considered new transactions 
under Sec.  226.20), for which the creditor receives an application on 
or after October 1, 2009, except for the final rules on advertising, 
escrows, and loan servicing. The final rules on escrows in Sec.  
226.35(b)(3) are effective for covered loans, (including refinancings 
and assumptions in Sec.  226.20) for which the creditor receives an 
application on or after April 1, 2010; but for such loans secured by 
manufactured housing on or after October 1, 2010. The final rules 
applicable to servicers in Sec.  226.36(c) apply to all covered loans 
serviced on or after October 1, 2009. The final rules on advertising 
apply to advertisements occurring on or after October 1, 2009. For 
example, a radio ad occurs on the date it is first broadcast; a 
solicitation occurs on the date it is mailed to the consumer. The 
following examples illustrate the application of the effective dates 
for the final rules.
    i. General. A refinancing or assumption as defined in Sec.  
226.20(a) or (b) is a new transaction and is covered by a provision of 
the final rules if the creditor receives an application for the 
transaction on or after that provision's effective date. For example, 
if a creditor receives an application for a refinance loan covered by 
Sec.  226.35(a) on or after October 1, 2009, and the refinance loan is 
consummated on October 15, 2009, the provision restricting prepayment 
penalties in Sec.  226.35(b)(2) applies. However, if the transaction 
were a modification of an existing obligation's terms that does not 
constitute a refinance loan under Sec.  226.20(a), the final rules, 
including for example the restriction on prepayment penalties would not 
apply.
    ii. Escrows. Assume a consumer applies for a refinance loan to be 
secured by a dwelling (that is not a manufactured home) on March 15, 
2010, and the loan is consummated on April 2, 2010, the escrow rule in 
Sec.  226.35(b)(3) does not apply.
    iii. Servicing. Assume that a consumer applies for a new loan on 
August 1, 2009. The loan is consummated on September 1, 2009. The 
servicing rules in Sec.  226.36(c) apply to the servicing of that loan 
as of October 1, 2009.
    Paragraph 1(d)(6).
    1. Mandatory compliance dates. Compliance with the Board's 
revisions to Regulation Z published on August 14, 2009 is mandatory for 
private education loans for which the creditor receives an application 
on or after February 14, 2010. Compliance with the final rules on co-
branding in Sec. 226.48(a) and (b) is mandatory for marketing occurring 
on or after February 14, 2010. Compliance with the final rules is 
optional for private education loan transactions for which an 
application was received prior to February 14, 2010, even if 
consummated after the mandatory compliance date.
    2. Optional compliance. A creditor may, at its option, provide the 
approval and final disclosures required under Sec. Sec.  226.47(b) or 
(c) for private education loans where an application was received prior 
to the mandatory compliance date. If the creditor opts to provide the 
disclosures, the creditor must also comply with the applicable timing 
and other rules in Sec. Sec.  226.46 and 226.48 (including providing 
the consumer with the 30-day acceptance period under Sec.  226.48(c), 
and the right to cancel under Sec.  226.48(d)). For example if the 
creditor receives an application on January 25, 2010 and approves the 
consumer's application on or after February 14, 2010, the creditor may, 
at its option, provide the approval disclosures under Sec.  226.47(b), 
the final disclosures under Sec.  226.47(c) and comply with the 
applicable requirements Sec. Sec.  226.46 and 226.48. The creditor must 
also obtain the self-certification form as required in Sec.  226.48(e), 
if applicable. Or, for example, if the creditor receives an application 
on January 25, 2010 and approves the consumer's application before 
February 14, 2010, the creditor may, at its option, provide the final 
disclosure under Sec.  226.47(c) and comply with the applicable timing 
and other requirements of Sec. Sec.  226.46 and 226.48, including 
providing the consumer with the right to cancel under Sec.  226.48(d). 
The creditor must also obtain the self-certification form as required 
in Sec.  226.48(e), if applicable.
    Paragraph 1(d)(7).
    1. [Reserved.]

[[Page 54257]]

Sec.  226.2  Definitions and Rules of Construction.

    2(a)(2) Advertisement.
    1. Coverage. Only commercial messages that promote consumer credit 
transactions requiring disclosures are advertisements. Messages 
inviting, offering, or otherwise announcing generally to prospective 
customers the availability of credit transactions, whether in visual, 
oral, or print media, are covered by Regulation Z (12 CFR part 226).
    i. Examples include:
    A. Messages in a newspaper, magazine, leaflet, promotional flyer, 
or catalog.
    B. Announcements on radio, television, or public address system.
    C. Electronic advertisements, such as on the Internet.
    D. Direct mail literature or other printed material on any exterior 
or interior sign.
    E. Point of sale displays.
    F. Telephone solicitations.
    G. Price tags that contain credit information.
    H. Letters sent to customers or potential customers as part of an 
organized solicitation of business.
    I. Messages on checking account statements offering auto loans at a 
stated annual percentage rate.
    J. Communications promoting a new open-end plan or closed-end 
transaction.
    ii. The term does not include:
    A. Direct personal contacts, such as follow-up letters, cost 
estimates for individual consumers, or oral or written communication 
relating to the negotiation of a specific transaction.
    B. Informational material, for example, interest-rate and loan-term 
memos, distributed only to business entities.
    C. Notices required by Federal or State law, if the law mandates 
that specific information be displayed and only the information so 
mandated is included in the notice.
    D. News articles the use of which is controlled by the news medium.
    E. Market-research or educational materials that do not solicit 
business.
    F. Communications about an existing credit account (for example, a 
promotion encouraging additional or different uses of an existing 
credit card account.)
    2. Persons covered. All persons must comply with the advertising 
provisions in Sec. Sec.  226.16 and 226.24, not just those that meet 
the definition of creditor in Sec.  226.2(a)(17). Thus, home builders, 
merchants, and others who are not themselves creditors must comply with 
the advertising provisions of the regulation if they advertise consumer 
credit transactions. However, under section 145 of the act, the owner 
and the personnel of the medium in which an advertisement appears, or 
through which it is disseminated, are not subject to civil liability 
for violations.
    2(a)(3) Reserved.
    2(a)(4) Billing cycle or cycle.
    1. Intervals. In open-end credit plans, the billing cycle 
determines the intervals for which periodic disclosure statements are 
required; these intervals are also used as measuring points for other 
duties of the creditor. Typically, billing cycles are monthly, but they 
may be more frequent or less frequent (but not less frequent than 
quarterly).
    2. Creditors that do not bill. The term cycle is interchangeable 
with billing cycle for definitional purposes, since some creditors' 
cycles do not involve the sending of bills in the traditional sense but 
only statements of account activity. This is commonly the case with 
financial institutions when periodic payments are made through payroll 
deduction or through automatic debit of the consumer's asset account.
    3. Equal cycles. Although cycles must be equal, there is a 
permissible variance to account for weekends, holidays, and differences 
in the number of days in months. If the actual date of each statement 
does not vary by more than four days from a fixed ``day'' (for example, 
the third Thursday of each month) or ``date'' (for example, the 15th of 
each month) that the creditor regularly uses, the intervals between 
statements are considered equal. The requirement that cycles be equal 
applies even if the creditor applies a daily periodic rate to determine 
the finance charge. The requirement that intervals be equal does not 
apply to the first billing cycle on an open-end account (i.e., the time 
period between account opening and the generation of the first periodic 
statement) or to a transitional billing cycle that can occur if the 
creditor occasionally changes its billing cycles so as to establish a 
new statement day or date. (See comments 9(c)(1)-3 and 9(c)(2)-3.)
    4. Payment reminder. The sending of a regular payment reminder 
(rather than a late payment notice) establishes a cycle for which the 
creditor must send periodic statements.
    2(a)(6) Business day.
    1. Business function test. Activities that indicate that the 
creditor is open for substantially all of its business functions 
include the availability of personnel to make loan disbursements, to 
open new accounts, and to handle credit transaction inquiries. 
Activities that indicate that the creditor is not open for 
substantially all of its business functions include a retailer's merely 
accepting credit cards for purchases or a bank's having its customer-
service windows open only for limited purposes such as deposits and 
withdrawals, bill paying, and related services.
    2. Rule for rescission, disclosures for certain mortgage 
transactions, and private education loans. A more precise rule for what 
is a business day (all calendar days except Sundays and the Federal 
legal holidays specified in 5 U.S.C. 6103(a)) applies when the right of 
rescission, the receipt of disclosures for certain dwelling-secured 
mortgage transactions under Sec. Sec.  226.19(a)(1)(ii), 226.19(a)(2), 
226.31(c), or the receipt of disclosures for private education loans 
under Sec.  226.46(d)(4) is involved. Four Federal legal holidays are 
identified in 5 U.S.C. 6103(a) by a specific date: New Year's Day, 
January 1; Independence Day, July 4; Veterans Day, November 11; and 
Christmas Day, December 25. When one of these holidays (July 4, for 
example) falls on a Saturday, Federal offices and other entities might 
observe the holiday on the preceding Friday (July 3). In cases where 
the more precise rule applies, the observed holiday (in the example, 
July 3) is a business day.
    2(a)(7) Card issuer.
    1. Agent. An agent of a card issuer is considered a card issuer. 
Because agency relationships are traditionally defined by contract and 
by State or other applicable law, the regulation does not define agent. 
Merely providing services relating to the production of credit cards or 
data processing for others, however, does not make one the agent of the 
card issuer. In contrast, a financial institution may become the agent 
of the card issuer if an agreement between the institution and the card 
issuer provides that the cardholder may use a line of credit with the 
financial institution to pay obligations incurred by use of the credit 
card.
    2(a)(8) Cardholder.
    1. General rule. A cardholder is a natural person at whose request 
a card is issued for consumer credit purposes or who is a co-obligor or 
guarantor for such a card issued to another. The second category does 
not include an employee who is a co-obligor or guarantor on a card 
issued to the employer for business purposes, nor does it include a 
person who is merely the authorized user of a card issued to another.
    2. Limited application of regulation. For the limited purposes of 
the rules on issuance of credit cards and liability for unauthorized 
use, a cardholder includes any person, including an organization,

[[Page 54258]]

to whom a card is issued for any purpose--including a business, 
agricultural, or commercial purpose.
    3. Issuance. See the commentary to Sec.  226.12(a).
    4. Dual-purpose cards and dual-card systems. Some card issuers 
offer dual-purpose cards that are for business as well as consumer 
purposes. If a card is issued to an individual for consumer purposes, 
the fact that an organization has guaranteed to pay the debt does not 
make it business credit. On the other hand, if a card is issued for 
business purposes, the fact that an individual sometimes uses it for 
consumer purchases does not subject the card issuer to the provisions 
on periodic statements, billing-error resolution, and other protections 
afforded to consumer credit. Some card issuers offer dual-card 
systems--that is, they issue two cards to the same individual, one 
intended for business use, the other for consumer or personal use. With 
such a system, the same person may be a cardholder for general purposes 
when using the card issued for consumer use, and a cardholder only for 
the limited purposes of the restrictions on issuance and liability when 
using the card issued for business purposes.
    2(a)(9) Cash price.
    1. Components. This amount is a starting point in computing the 
amount financed and the total sale price under Sec.  226.18 for credit 
sales. Any charges imposed equally in cash and credit transactions may 
be included in the cash price, or they may be treated as other amounts 
financed under Sec.  226.18(b)(2).
    2. Service contracts. Service contracts include contracts for the 
repair or the servicing of goods, such as mechanical breakdown 
coverage, even if such a contract is characterized as insurance under 
State law.
    3. Rebates. The creditor has complete flexibility in the way it 
treats rebates for purposes of disclosure and calculation. (See the 
commentary to Sec.  226.18(b).)
    2(a)(10) Closed-end credit.
    1. General. The coverage of this term is defined by exclusion. That 
is, it includes any credit arrangement that does not fall within the 
definition of open-end credit. Subpart C contains the disclosure rules 
for closed-end credit when the obligation is subject to a finance 
charge or is payable by written agreement in more than four 
installments.
    2(a)(11) Consumer.
    1. Scope. Guarantors, endorsers, and sureties are not generally 
consumers for purposes of the regulation, but they may be entitled to 
rescind under certain circumstances and they may have certain rights if 
they are obligated on credit card plans.
    2. Rescission rules. For purposes of rescission under Sec. Sec.  
226.15 and 226.23, a consumer includes any natural person whose 
ownership interest in his or her principal dwelling is subject to the 
risk of loss. Thus, if a security interest is taken in A's ownership 
interest in a house and that house is A's principal dwelling, A is a 
consumer for purposes of rescission, even if A is not liable, either 
primarily or secondarily, on the underlying consumer credit 
transaction. An ownership interest does not include, for example, 
leaseholds or inchoate rights, such as dower.
    3. Land trusts. Credit extended to land trusts, as described in the 
commentary to Sec.  226.3(a), is considered to be extended to a natural 
person for purposes of the definition of consumer.
    2(a)(12) Consumer credit.
    1. Primary purpose. There is no precise test for what constitutes 
credit offered or extended for personal, family, or household purposes, 
nor for what constitutes the primary purpose. (See, however, the 
discussion of business purposes in the commentary to Sec.  226.3(a).)
    2(a)(13) Consummation.
    1. State law governs. When a contractual obligation on the 
consumer's part is created is a matter to be determined under 
applicable law; Regulation Z does not make this determination. A 
contractual commitment agreement, for example, that under applicable 
law binds the consumer to the credit terms would be consummation. 
Consummation, however, does not occur merely because the consumer has 
made some financial investment in the transaction (for example, by 
paying a nonrefundable fee) unless, of course, applicable law holds 
otherwise.
    2. Credit v. sale. Consummation does not occur when the consumer 
becomes contractually committed to a sale transaction, unless the 
consumer also becomes legally obligated to accept a particular credit 
arrangement. For example, when a consumer pays a nonrefundable deposit 
to purchase an automobile, a purchase contract may be created, but 
consummation for purposes of the regulation does not occur unless the 
consumer also contracts for financing at that time.
    2(a)(14) Credit.
    1. Exclusions. The following situations are not considered credit 
for purposes of the regulation:
    i. Layaway plans, unless the consumer is contractually obligated to 
continue making payments. Whether the consumer is so obligated is a 
matter to be determined under applicable law. The fact that the 
consumer is not entitled to a refund of any amounts paid towards the 
cash price of the merchandise does not bring layaways within the 
definition of credit.
    ii. Tax liens, tax assessments, court judgments, and court 
approvals of reaffirmation of debts in bankruptcy. However, third-party 
financing of such obligations (for example, a bank loan obtained to pay 
off a tax lien) is credit for purposes of the regulation.
    iii. Insurance premium plans that involve payment in installments 
with each installment representing the payment for insurance coverage 
for a certain future period of time, unless the consumer is 
contractually obligated to continue making payments.
    iv. Home improvement transactions that involve progress payments, 
if the consumer pays, as the work progresses, only for work completed 
and has no contractual obligation to continue making payments.
    v. Borrowing against the accrued cash value of an insurance policy 
or a pension account, if there is no independent obligation to repay.
    vi. Letters of credit.
    vii. The execution of option contracts. However, there may be an 
extension of credit when the option is exercised, if there is an 
agreement at that time to defer payment of a debt.
    viii. Investment plans in which the party extending capital to the 
consumer risks the loss of the capital advanced. This includes, for 
example, an arrangement with a home purchaser in which the investor 
pays a portion of the downpayment and of the periodic mortgage payments 
in return for an ownership interest in the property, and shares in any 
gain or loss of property value.
    ix. Mortgage assistance plans administered by a government agency 
in which a portion of the consumer's monthly payment amount is paid by 
the agency. No finance charge is imposed on the subsidy amount, and 
that amount is due in a lump-sum payment on a set date or upon the 
occurrence of certain events. (If payment is not made when due, a new 
note imposing a finance charge may be written, which may then be 
subject to the regulation.)
    2. Payday loans; deferred presentment. Credit includes a 
transaction in which a cash advance is made to a consumer in exchange 
for the consumer's personal check, or in exchange for the consumer's 
authorization to debit the consumer's deposit account, and where the 
parties agree either that the check will not be cashed or deposited, or 
that the

[[Page 54259]]

consumer's deposit account will not be debited, until a designated 
future date. This type of transaction is often referred to as a 
``payday loan'' or ``payday advance'' or ``deferred-presentment loan.'' 
A fee charged in connection with such a transaction may be a finance 
charge for purposes of Sec.  226.4, regardless of how the fee is 
characterized under State law. Where the fee charged constitutes a 
finance charge under Sec.  226.4 and the person advancing funds 
regularly extends consumer credit, that person is a creditor and is 
required to provide disclosures consistent with the requirements of 
Regulation Z. (See Sec.  226.2(a)(17).)
    2(a)(15) Credit card.
    1. Usable from time to time. A credit card must be usable from time 
to time. Since this involves the possibility of repeated use of a 
single device, checks and similar instruments that can be used only 
once to obtain a single credit extension are not credit cards.
    2. Examples. i. Examples of credit cards include:
    A. 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.
    B. A card that accesses both a credit and an asset account (that 
is, a debit-credit card).
    C. An identification card that permits the consumer to defer 
payment on a purchase.
    D. An identification card indicating loan approval that is 
presented to a merchant or to a lender, whether or not the consumer 
signs a separate promissory note for each credit extension.
    E. A card or device that can be activated upon receipt to access 
credit, even if the card has a substantive use other than credit, such 
as a purchase-price discount card. Such a card or device is a credit 
card notwithstanding the fact that the recipient must first contact the 
card issuer to access or activate the credit feature.
    ii. In contrast, credit card does not include, for example:
    A. A check-guarantee or debit card with no credit feature or 
agreement, even if the creditor occasionally honors an inadvertent 
overdraft.
    B. Any card, key, plate, or other device that is used in order to 
obtain petroleum products for business purposes from a wholesale 
distribution facility or to gain access to that facility, and that is 
required to be used without regard to payment terms.
    3. Charge card. Generally, charge cards are cards used in 
connection with an account on which outstanding balances cannot be 
carried from one billing cycle to another and are payable when a 
periodic statement is received. Under the regulation, a reference to 
credit cards generally includes charge cards. The term charge card is, 
however, distinguished from credit card in Sec. Sec.  226.5a, 
226.7(b)(11), 226.7(b)(12), 226.9(e), 226.9(f) and 226.28(d), and 
appendices G-10 through G-13. When the term credit card is used in 
those provisions, it refers to credit cards other than charge cards.
    2(a)(16) Credit sale.
    1. Special disclosure. If the seller is a creditor in the 
transaction, the transaction is a credit sale and the special credit 
sale disclosures (that is, the disclosures under Sec.  226.18(j)) must 
be given. This applies even if there is more than one creditor in the 
transaction and the creditor making the disclosures is not the seller. 
(See the commentary to Sec.  226.17(d).)
    2. Sellers who arrange credit. If the seller of the property or 
services involved arranged for financing but is not a creditor as to 
that sale, the transaction is not a credit sale. Thus, if a seller 
assists the consumer in obtaining a direct loan from a financial 
institution and the consumer's note is payable to the financial 
institution, the transaction is a loan and only the financial 
institution is a creditor.
    3. Refinancings. Generally, when a credit sale is refinanced within 
the meaning of Sec.  226.20(a), loan disclosures should be made. 
However, if a new sale of goods or services is also involved, the 
transaction is a credit sale.
    4. Incidental sales. Some lenders sell a product or service--such 
as credit, property, or health insurance--as part of a loan 
transaction. Section 226.4 contains the rules on whether the cost of 
credit life, disability or property insurance is part of the finance 
charge. If the insurance is financed, it may be disclosed as a separate 
credit-sale transaction or disclosed as part of the primary 
transaction; if the latter approach is taken, either loan or credit-
sale disclosures may be made. (See the commentary to Sec.  226.17(c)(1) 
for further discussion of this point.)
    5. Credit extensions for educational purposes. A credit extension 
for educational purposes in which an educational institution is the 
creditor may be treated as either a credit sale or a loan, regardless 
of whether the funds are given directly to the student, credited to the 
student's account, or disbursed to other persons on the student's 
behalf. The disclosure of the total sale price need not be given if the 
transaction is treated as a loan.
    2(a)(17) Creditor.
    1. General. The definition contains four independent tests. If any 
one of the tests is met, the person is a creditor for purposes of that 
particular test.
    Paragraph 2(a)(17)(i).
    1. Prerequisites. This test is composed of two requirements, both 
of which must be met in order for a particular credit extension to be 
subject to the regulation and for the credit extension to count towards 
satisfaction of the numerical tests mentioned in Sec.  226.2(a)(17)(v).
    i. First, there must be either or both of the following:
    A. A written (rather than oral) agreement to pay in more than four 
installments. A letter that merely confirms an oral agreement does not 
constitute a written agreement for purposes of the definition.
    B. A finance charge imposed for the credit. The obligation to pay 
the finance charge need not be in writing.
    ii. Second, the obligation must be payable to the person in order 
for that person to be considered a creditor. If an obligation is made 
payable to bearer, the creditor is the one who initially accepts the 
obligation.
    2. Assignees. If an obligation is initially payable to one person, 
that person is the creditor even if the obligation by its terms is 
simultaneously assigned to another person. For example:
    i. An auto dealer and a bank have a business relationship in which 
the bank supplies the dealer with credit sale contracts that are 
initially made payable to the dealer and provide for the immediate 
assignment of the obligation to the bank. The dealer and purchaser 
execute the contract only after the bank approves the creditworthiness 
of the purchaser. Because the obligation is initially payable on its 
face to the dealer, the dealer is the only creditor in the transaction.
    3. Numerical tests. The examples below illustrate how the numerical 
tests of Sec.  226.2(a)(17)(v) are applied. The examples assume that 
consumer credit with a finance charge or written agreement for more 
than 4 installments was extended in the years in question and that the 
person did not extend such credit in 2006.
    4. Counting transactions. For purposes of closed-end credit, the 
creditor counts each credit transaction. For open-end credit, 
transactions means accounts, so that outstanding accounts are counted 
instead of individual credit extensions. Normally the number of 
transactions is measured by the preceding calendar year; if the 
requisite number is met, then the person is a

[[Page 54260]]

creditor for all transactions in the current year. However, if the 
person did not meet the test in the preceding year, the number of 
transactions is measured by the current calendar year. For example, if 
the person extends consumer credit 26 times in 2007, it is a creditor 
for purposes of the regulation for the last extension of credit in 2007 
and for all extensions of consumer credit in 2008. On the other hand, 
if a business begins in 2007 and extends consumer credit 20 times, it 
is not a creditor for purposes of the regulation in 2007. If it extends 
consumer credit 75 times in 2008, however, it becomes a creditor for 
purposes of the regulation (and must begin making disclosures) after 
the 25th extension of credit in that year and is a creditor for all 
extensions of consumer credit in 2009.
    5. Relationship between consumer credit in general and credit 
secured by a dwelling. Extensions of credit secured by a dwelling are 
counted towards the 25-extensions test. For example, if in 2007 a 
person extends unsecured consumer credit 23 times and consumer credit 
secured by a dwelling twice, it becomes a creditor for the succeeding 
extensions of credit, whether or not they are secured by a dwelling. On 
the other hand, extensions of consumer credit not secured by a dwelling 
are not counted towards the number of credit extensions secured by a 
dwelling. For example, if in 2007 a person extends credit not secured 
by a dwelling 8 times and credit secured by a dwelling 3 times, it is 
not a creditor.
    6. Effect of satisfying one test. Once one of the numerical tests 
is satisfied, the person is also a creditor for the other type of 
credit. For example, in 2007 a person extends consumer credit secured 
by a dwelling 5 times. That person is a creditor for all succeeding 
credit extensions, whether they involve credit secured by a dwelling or 
not.
    7. Trusts. In the case of credit extended by trusts, each 
individual trust is considered a separate entity for purposes of 
applying the criteria. For example:
    i. A bank is the trustee for three trusts. Trust A makes 15 
extensions of consumer credit annually; Trust B makes 10 extensions of 
consumer credit annually; and Trust C makes 30 extensions of consumer 
credit annually. Only Trust C is a creditor for purposes of the 
regulation.
    Paragraph 2(a)(17)(ii). [Reserved]
    Paragraph 2(a)(17)(iii).
    1. Card issuers subject to Subpart B. Section 226.2(a)(17)(iii) 
makes certain card issuers creditors for purposes of the open-end 
credit provisions of the regulation. This includes, for example, the 
issuers of so-called travel and entertainment cards that expect 
repayment at the first billing and do not impose a finance charge. 
Since all disclosures are to be made only as applicable, such card 
issuers would omit finance charge disclosures. Other provisions of the 
regulation regarding such areas as scope, definitions, determination of 
which charges are finance charges, Spanish language disclosures, record 
retention, and use of model forms, also apply to such card issuers.
    Paragraph 2(a)(17)(iv).
    1. Card issuers subject to Subparts B and C. Section 
226.2(a)(17)(iv) includes as creditors card issuers extending closed-
end credit in which there is a finance charge or an agreement to pay in 
more than four installments. These card issuers are subject to the 
appropriate provisions of Subparts B and C, as well as to the general 
provisions.
    2(a)(18) Downpayment.
    1. Allocation. If a consumer makes a lump-sum payment, partially to 
reduce the cash price and partially to pay prepaid finance charges, 
only the portion attributable to reducing the cash price is part of the 
downpayment. (See the commentary to Sec.  226.2(a)(23).)
    2. Pick-up payments. i. Creditors may treat the deferred portion of 
the downpayment, often referred to as pick-up payments, in a number of 
ways. If the pick-up payment is treated as part of the downpayment:
    A. It is subtracted in arriving at the amount financed under Sec.  
226.18(b).
    B. It may, but need not, be reflected in the payment schedule under 
Sec.  226.18(g).
    ii. If the pick-up payment does not meet the definition (for 
example, if it is payable after the second regularly scheduled payment) 
or if the creditor chooses not to treat it as part of the downpayment:
    A. It must be included in the amount financed.
    B. It must be shown in the payment schedule.
    iii. Whichever way the pick-up payment is treated, the total of 
payments under Sec.  226.18(h) must equal the sum of the payments 
disclosed under Sec.  226.18(g).
    3. Effect of existing liens.
    i. No cash payment. In a credit sale, the ``downpayment'' may only 
be used to reduce the cash price. For example, when a trade-in is used 
as the downpayment and the existing lien on an automobile to be traded 
in exceeds the value of the automobile, creditors must disclose a zero 
on the downpayment line rather than a negative number. To illustrate, 
assume a consumer owes $10,000 on an existing automobile loan and that 
the trade-in value of the automobile is only $8,000, leaving a $2,000 
deficit. The creditor should disclose a downpayment of $0, not -$2,000.
    ii. Cash payment. If the consumer makes a cash payment, creditors 
may, at their option, disclose the entire cash payment as the 
downpayment, or apply the cash payment first to any excess lien amount 
and disclose any remaining cash as the downpayment. In the above 
example:
    A. If the downpayment disclosed is equal to the cash payment, the 
$2,000 deficit must be reflected as an additional amount financed under 
Sec.  226.18(b)(2).
    B. If the consumer provides $1,500 in cash (which does not 
extinguish the $2,000 deficit), the creditor may disclose a downpayment 
of $1,500 or of $0.
    C. If the consumer provides $3,000 in cash, the creditor may 
disclose a downpayment of $3,000 or of $1,000.
    2(a)(19) Dwelling.
    1. Scope. A dwelling need not be the consumer's principal residence 
to fit the definition, and thus a vacation or second home could be a 
dwelling. However, for purposes of the definition of residential 
mortgage transaction and the right to rescind, a dwelling must be the 
principal residence of the consumer. (See the commentary to Sec. Sec.  
226.2(a)(24), 226.15, and 226.23.)
    2. Use as a residence. Mobile homes, boats, and trailers are 
dwellings if they are in fact used as residences, just as are 
condominium and cooperative units. Recreational vehicles, campers, and 
the like not used as residences are not dwellings.
    3. Relation to exemptions. Any transaction involving a security 
interest in a consumer's principal dwelling (as well as in any real 
property) remains subject to the regulation despite the general 
exemption in Sec.  226.3(b) for credit extensions over $25,000.
    2(a)(20) Open-end credit.
    1. General. This definition describes the characteristics of open-
end credit (for which the applicable disclosure and other rules are 
contained in Subpart B), as distinct from closed-end credit. Open-end 
credit is consumer credit that is extended under a plan and meets all 3 
criteria set forth in the definition.
    2. Existence of a plan. The definition requires that there be a 
plan, which connotes a contractual arrangement between the creditor and 
the consumer. Some creditors offer programs containing a number of 
different credit features. The consumer has a single

[[Page 54261]]

account with the institution that can be accessed repeatedly via a 
number of sub-accounts established for the different program features 
and rate structures. Some features of the program might be used 
repeatedly (for example, an overdraft line) while others might be used 
infrequently (such as the part of the credit line available for secured 
credit). If the program as a whole is subject to prescribed terms and 
otherwise meets the definition of open-end credit, such a program would 
be considered a single, multifeatured plan.
    3. Repeated transactions. Under this criterion, the creditor must 
reasonably contemplate repeated transactions. This means that the 
credit plan must be usable from time to time and the creditor must 
legitimately expect that there will be repeat business rather than a 
one-time credit extension. The creditor must expect repeated dealings 
with consumers under the credit plan as a whole and need not believe a 
consumer will reuse a particular feature of the plan. The determination 
of whether a creditor can reasonably contemplate repeated transactions 
requires an objective analysis. Information that much of the creditor's 
customer base with accounts under the plan make repeated transactions 
over some period of time is relevant to the determination, particularly 
when the plan is opened primarily for the financing of infrequently 
purchased products or services. A standard based on reasonable belief 
by a creditor necessarily includes some margin for judgmental error. 
The fact that particular consumers do not return for further credit 
extensions does not prevent a plan from having been properly 
characterized as open-end. For example, if much of the customer base of 
a clothing store makes repeat purchases, the fact that some consumers 
use the plan only once would not affect the characterization of the 
store's plan as open-end credit. The criterion regarding repeated 
transactions is a question of fact to be decided in the context of the 
creditor's type of business and the creditor's relationship with its 
customers. For example, it would be more reasonable for a bank or 
depository institution to contemplate repeated transactions with a 
customer than for a seller of aluminum siding to make the same 
assumption about its customers.
    4. Finance charge on an outstanding balance. The requirement that a 
finance charge may be computed and imposed from time to time on the 
outstanding balance means that there is no specific amount financed for 
the plan for which the finance charge, total of payments, and payment 
schedule can be calculated. A plan may meet the definition of open-end 
credit even though a finance charge is not normally imposed, provided 
the creditor has the right, under the plan, to impose a finance charge 
from time to time on the outstanding balance. For example, in some 
plans, a finance charge is not imposed if the consumer pays all or a 
specified portion of the outstanding balance within a given time 
period. Such a plan could meet the finance charge criterion, if the 
creditor has the right to impose a finance charge, even though the 
consumer actually pays no finance charges during the existence of the 
plan because the consumer takes advantage of the option to pay the 
balance (either in full or in installments) within the time necessary 
to avoid finance charges.
    5. Reusable line. The total amount of credit that may be extended 
during the existence of an open-end plan is unlimited because available 
credit is generally replenished as earlier advances are repaid. A line 
of credit is self-replenishing even though the plan itself has a fixed 
expiration date, as long as during the plan's existence the consumer 
may use the line, repay, and reuse the credit. The creditor may 
occasionally or routinely verify credit information such as the 
consumer's continued income and employment status or information for 
security purposes but, to meet the definition of open-end credit, such 
verification of credit information may not be done as a condition of 
granting a consumer's request for a particular advance under the plan. 
In general, a credit line is self-replenishing if the consumer can take 
further advances as outstanding balances are repaid without being 
required to separately apply for those additional advances. A credit 
card account where the plan as a whole replenishes meets the self-
replenishing criterion, notwithstanding the fact that a credit card 
issuer may verify credit information from time to time in connection 
with specific transactions. This criterion of unlimited credit 
distinguishes open-end credit from a series of advances made pursuant 
to a closed-end credit loan commitment. For example:
    i. Under a closed-end commitment, the creditor might agree to lend 
a total of $10,000 in a series of advances as needed by the consumer. 
When a consumer has borrowed the full $10,000, no more is advanced 
under that particular agreement, even if there has been repayment of a 
portion of the debt. (See Sec.  226.2(a)(17)(iv) for disclosure 
requirements when a credit card is used to obtain the advances.)
    ii. This criterion does not mean that the creditor must establish a 
specific credit limit for the line of credit or that the line of credit 
must always be replenished to its original amount. The creditor may 
reduce a credit limit or refuse to extend new credit in a particular 
case due to changes in the creditor's financial condition or the 
consumer's creditworthiness. (The rules in Sec.  226.5b(f), however, 
limit the ability of a creditor to suspend credit advances for home 
equity plans.) While consumers should have a reasonable expectation of 
obtaining credit as long as they remain current and within any preset 
credit limits, further extensions of credit need not be an absolute 
right in order for the plan to meet the self-replenishing criterion.
    6. Verifications of collateral value. Creditors that otherwise meet 
the requirements of Sec.  226.2(a)(20) extend open-end credit 
notwithstanding the fact that the creditor must verify collateral 
values to comply with Federal, State, or other applicable law or 
verifies the value of collateral in connection with a particular 
advance under the plan.
    7. Open-end real estate mortgages. Some credit plans call for 
negotiated advances under so-called open-end real estate mortgages. 
Each such plan must be independently measured against the definition of 
open-end credit, regardless of the terminology used in the industry to 
describe the plan. The fact that a particular plan is called an open-
end real estate mortgage, for example, does not, by itself, mean that 
it is open-end credit under the regulation.
    2(a)(21) Periodic rate.
    1. Basis. The periodic rate may be stated as a percentage (for 
example, 1[frac12]% per month) or as a decimal equivalent (for example, 
.015 monthly). It may be based on any portion of a year the creditor 
chooses. Some creditors use \1/360\ of an annual rate as their periodic 
rate. These creditors:
    i. May disclose a \1/360\ rate as a daily periodic rate, without 
further explanation, if it is in fact only applied 360 days per year. 
But if the creditor applies that rate for 365 days, the creditor must 
note that fact and, of course, disclose the true annual percentage 
rate.
    ii. Would have to apply the rate to the balance to disclose the 
annual percentage rate with the degree of accuracy required in the 
regulation (that is, within \1/8\th of 1 percentage point of the rate 
based on the actual 365 days in the year).

[[Page 54262]]

    2. Transaction charges. Periodic rate does not include initial one-
time transaction charges, even if the charge is computed as a 
percentage of the transaction amount.
    2(a)(22) Person.
    1. Joint ventures. A joint venture is an organization and is 
therefore a person.
    2. Attorneys. An attorney and his or her client are considered to 
be the same person for purposes of this regulation when the attorney is 
acting within the scope of the attorney-client relationship with regard 
to a particular transaction.
    3. Trusts. A trust and its trustee are considered to be the same 
person for purposes of this regulation.
    2(a)(23) Prepaid finance charge.
    1. General. Prepaid finance charges must be taken into account 
under Sec.  226.18(b) in computing the disclosed amount financed, and 
must be disclosed if the creditor provides an itemization of the amount 
financed under Sec.  226.18(c).
    2. Examples. i. Common examples of prepaid finance charges include:
    A. Buyer's points.
    B. Service fees.
    C. Loan fees.
    D. Finder's fees.
    E. Loan-guarantee insurance.
    F. Credit-investigation fees.
    ii. However, in order for these or any other finance charges to be 
considered prepaid, they must be either paid separately in cash or 
check or withheld from the proceeds. Prepaid finance charges include 
any portion of the finance charge paid prior to or at closing or 
settlement.
    3. Exclusions. Add-on and discount finance charges are not prepaid 
finance charges for purposes of this regulation. Finance charges are 
not prepaid merely because they are precomputed, whether or not a 
portion of the charge will be rebated to the consumer upon prepayment. 
(See the commentary to Sec.  226.18(b).)
    4. Allocation of lump-sum payments. In a credit sale transaction 
involving a lump-sum payment by the consumer and a discount or other 
item that is a finance charge under Sec.  226.4, the discount or other 
item is a prepaid finance charge to the extent the lump-sum payment is 
not applied to the cash price. For example, a seller sells property to 
a consumer for $10,000, requires the consumer to pay $3,000 at the time 
of the purchase, and finances the remainder as a closed-end credit 
transaction. The cash price of the property is $9,000. The seller is 
the creditor in the transaction and therefore the $1,000 difference 
between the credit and cash prices (the discount) is a finance charge. 
(See the commentary to Sec.  226.4(b)(9) and (c)(5).) If the creditor 
applies the entire $3,000 to the cash price and adds the $1,000 finance 
charge to the interest on the $6,000 to arrive at the total finance 
charge, all of the $3,000 lump-sum payment is a downpayment and the 
discount is not a prepaid finance charge. However, if the creditor only 
applies $2,000 of the lump-sum payment to the cash price, then $2,000 
of the $3,000 is a downpayment and the $1,000 discount is a prepaid 
finance charge.
    2(a)(24) Residential mortgage transaction.
    1. Relation to other sections. This term is important in five 
provisions in the regulation:
    i. Section 226.4(c)(7)--exclusions from the finance charge.
    ii. Section 226.15(f)--exemption from the right of rescission.
    iii. Section 226.18(q)--whether or not the obligation is assumable.
    iv. Section 226.20(b)--disclosure requirements for assumptions.
    v. Section 226.23(f)--exemption from the right of rescission.
    2. Lien status. The definition is not limited to first lien 
transactions. For example, a consumer might assume a paid-down first 
mortgage (or borrow part of the purchase price) and borrow the balance 
of the purchase price from a creditor who takes a second mortgage. The 
second mortgage transaction is a residential mortgage transaction if 
the dwelling purchased is the consumer's principal residence.
    3. Principal dwelling. A consumer can have only one principal 
dwelling at a time. Thus, a vacation or other second home would not be 
a principal dwelling. However, if a consumer buys or builds a new 
dwelling that will become the consumer's principal dwelling within a 
year or upon the completion of construction, the new dwelling is 
considered the principal dwelling for purposes of applying this 
definition to a particular transaction. (See the commentary to 
Sec. Sec.  226.15(a) and 226.23(a).)
    4. Construction financing. If a transaction meets the definition of 
a residential mortgage transaction and the creditor chooses to disclose 
it as several transactions under Sec.  226.17(c)(6), each one is 
considered to be a residential mortgage transaction, even if different 
creditors are involved. For example:
    i. The creditor makes a construction loan to finance the initial 
construction of the consumer's principal dwelling, and the loan will be 
disbursed in five advances. The creditor gives six sets of disclosures 
(five for the construction phase and one for the permanent phase). Each 
one is a residential mortgage transaction.
    ii. One creditor finances the initial construction of the 
consumer's principal dwelling and another creditor makes a loan to 
satisfy the construction loan and provide permanent financing. Both 
transactions are residential mortgage transactions.
    5. Acquisition. i. A residential mortgage transaction finances the 
acquisition of a consumer's principal dwelling. The term does not 
include a transaction involving a consumer's principal dwelling if the 
consumer had previously purchased and acquired some interest to the 
dwelling, even though the consumer had not acquired full legal title.
    ii. Examples of new transactions involving a previously acquired 
dwelling include the financing of a balloon payment due under a land 
sale contract and an extension of credit made to a joint owner of 
property to buy out the other joint owner's interest. In these 
instances, disclosures are not required under Sec.  226.18(q) 
(assumability policies). However, the rescission rules of Sec. Sec.  
226.15 and 226.23 do apply to these new transactions.
    iii. In other cases, the disclosure and rescission rules do not 
apply. For example, where a buyer enters into a written agreement with 
the creditor holding the seller's mortgage, allowing the buyer to 
assume the mortgage, if the buyer had previously purchased the property 
and agreed with the seller to make the mortgage payments, Sec.  
226.20(b) does not apply (assumptions involving residential mortgages).
    6. Multiple purpose transactions. A transaction meets the 
definition of this section if any part of the loan proceeds will be 
used to finance the acquisition or initial construction of the 
consumer's principal dwelling. For example, a transaction to finance 
the initial construction of the consumer's principal dwelling is a 
residential mortgage transaction even if a portion of the funds will be 
disbursed directly to the consumer or used to satisfy a loan for the 
purchase of the land on which the dwelling will be built.
    7. Construction on previously acquired vacant land. A residential 
mortgage transaction includes a loan to finance the construction of a 
consumer's principal dwelling on a vacant lot previously acquired by 
the consumer.
    2(a)(25) Security interest.
    1. Threshold test. The threshold test is whether a particular 
interest in property is recognized as a security interest under 
applicable law. The regulation does not determine whether a particular 
interest is a security interest under applicable law. If the creditor 
is unsure whether a particular interest is a

[[Page 54263]]

security interest under applicable law (for example, if statutes and 
case law are either silent or inconclusive on the issue), the creditor 
may at its option consider such interests as security interests for 
Truth in Lending purposes. However, the regulation and the commentary 
do exclude specific interests, such as after-acquired property and 
accessories, from the scope of the definition regardless of their 
categorization under applicable law, and these named exclusions may not 
be disclosed as security interests under the regulation. (But see the 
discussion of exclusions elsewhere in the commentary to Sec.  
226.2(a)(25).)
    2. Exclusions. The general definition of security interest excludes 
three groups of interests: incidental interests, interests in after-
acquired property, and interests that arise solely by operation of law. 
These interests may not be disclosed with the disclosures required 
under Sec.  226.18, but the creditor is not precluded from preserving 
these rights elsewhere in the contract documents, or invoking and 
enforcing such rights, if it is otherwise lawful to do so. If the 
creditor is unsure whether a particular interest is one of the excluded 
interests, the creditor may, at its option, consider such interests as 
security interests for Truth in Lending purposes.
    3. Incidental interests. i. Incidental interests in property that 
are not security interests include, among other things:
    A. Assignment of rents.
    B. Right to condemnation proceeds.
    C. Interests in accessories and replacements.
    D. Interests in escrow accounts, such as for taxes and insurance.
    E. Waiver of homestead or personal property rights.
    ii. The notion of an incidental interest does not encompass an 
explicit security interest in an insurance policy if that policy is the 
primary collateral for the transaction--for example, in an insurance 
premium financing transaction.
    4. Operation of law. Interests that arise solely by operation of 
law are excluded from the general definition. Also excluded are 
interests arising by operation of law that are merely repeated or 
referred to in the contract. However, if the creditor has an interest 
that arises by operation of law, such as a vendor's lien, and takes an 
independent security interest in the same property, such as a UCC 
security interest, the latter interest is a disclosable security 
interest unless otherwise provided.
    5. Rescission rules. Security interests that arise solely by 
operation of law are security interests for purposes of rescission. 
Examples of such interests are mechanics' and materialmen's liens.
    6. Specificity of disclosure. A creditor need not separately 
disclose multiple security interests that it may hold in the same 
collateral. The creditor need only disclose that the transaction is 
secured by the collateral, even when security interests from prior 
transactions remain of record and a new security interest is taken in 
connection with the transaction. In disclosing the fact that the 
transaction is secured by the collateral, the creditor also need not 
disclose how the security interest arose. For example, in a closed-end 
credit transaction, a rescission notice need not specifically state 
that a new security interest is ``acquired'' or an existing security 
interest is ``retained'' in the transaction. The acquisition or 
retention of a security interest in the consumer's principal dwelling 
instead may be disclosed in a rescission notice with a general 
statement such as the following: ``Your home is the security for the 
new transaction.''
    2(b) Rules of construction.
    1. Footnotes. Footnotes are used extensively in the regulation to 
provide special exceptions and more detailed explanations and examples. 
Material that appears in a footnote has the same legal weight as 
material in the body of the regulation.
    2. Amount. The numerical amount must be a dollar amount unless 
otherwise indicated. For example, in a closed-end transaction (Subpart 
C), the amount financed and the amount of any payment must be expressed 
as a dollar amount. In some cases, an amount should be expressed as a 
percentage. For example, in disclosures provided before the first 
transaction under an open-end plan (Subpart B), creditors are permitted 
to explain how the amount of any finance charge will be determined; 
where a cash-advance fee (which is a finance charge) is a percentage of 
each cash advance, the amount of the finance charge for that fee is 
expressed as a percentage.


Sec.  226.3  Exempt Transactions.

    1. Relationship to Sec.  226.12. The provisions in Sec.  226.12(a) 
and (b) governing the issuance of credit cards and the limitations on 
liability for their unauthorized use apply to all credit cards, even if 
the credit cards are issued for use in connection with extensions of 
credit that otherwise are exempt under this section.
    3(a) Business, commercial, agricultural, or organizational credit.
    1. Primary purposes. A creditor must determine in each case if the 
transaction is primarily for an exempt purpose. If some question exists 
as to the primary purpose for a credit extension, the creditor is, of 
course, free to make the disclosures, and the fact that disclosures are 
made under such circumstances is not controlling on the question of 
whether the transaction was exempt. (See comment 3(a)-2, however, with 
respect to credit cards.)
    2. Business purpose purchases.
    i. Business-purpose credit cards--extensions of credit for consumer 
purposes. If a business-purpose credit card is issued to a person, the 
provisions of the regulation do not apply, other than as provided in 
Sec. Sec.  226.12(a) and 226.12(b), even if extensions of credit for 
consumer purposes are occasionally made using that business-purpose 
credit card. For example, the billing error provisions set forth in 
Sec.  226.13 do not apply to consumer-purpose extensions of credit 
using a business-purpose credit card.
    ii. Consumer-purpose credit cards--extensions of credit for 
business purposes. If a consumer-purpose credit card is issued to a 
person, the provisions of the regulation apply, even to occasional 
extensions of credit for business purposes made using that consumer-
purpose credit card. For example, a consumer may assert a billing error 
with respect to any extension of credit using a consumer-purpose credit 
card, even if the specific extension of credit on such credit card or 
open-end credit plan that is the subject of the dispute was made for 
business purposes.
    3. Factors. In determining whether credit to finance an 
acquisition--such as securities, antiques, or art--is primarily for 
business or commercial purposes (as opposed to a consumer purpose), the 
following factors should be considered:
    i. General.
    A. The relationship of the borrower's primary occupation to the 
acquisition. The more closely related, the more likely it is to be 
business purpose.
    B. The degree to which the borrower will personally manage the 
acquisition. The more personal involvement there is, the more likely it 
is to be business purpose.
    C. The ratio of income from the acquisition to the total income of 
the borrower. The higher the ratio, the more likely it is to be 
business purpose.
    D. The size of the transaction. The larger the transaction, the 
more likely it is to be business purpose.
    E. The borrower's statement of purpose for the loan.
    ii. Business-purpose examples. Examples of business-purpose credit 
include:

[[Page 54264]]

    A. A loan to expand a business, even if it is secured by the 
borrower's residence or personal property.
    B. A loan to improve a principal residence by putting in a business 
office.
    C. A business account used occasionally for consumer purposes.
    iii. Consumer-purpose examples. Examples of consumer-purpose credit 
include:
    A. Credit extensions by a company to its employees or agents if the 
loans are used for personal purposes.
    B. A loan secured by a mechanic's tools to pay a child's tuition.
    C. A personal account used occasionally for business purposes.
    4. Non-owner-occupied rental property. Credit extended to acquire, 
improve, or maintain rental property (regardless of the number of 
housing units) that is not owner-occupied is deemed to be for business 
purposes. This includes, for example, the acquisition of a warehouse 
that will be leased or a single-family house that will be rented to 
another person to live in. If the owner expects to occupy the property 
for more than 14 days during the coming year, the property cannot be 
considered non-owner-occupied and this special rule will not apply. For 
example, a beach house that the owner will occupy for a month in the 
coming summer and rent out the rest of the year is owner occupied and 
is not governed by this special rule. (See comment 3(a)-5, however, for 
rules relating to owner-occupied rental property.)
    5. Owner-occupied rental property. If credit is extended to 
acquire, improve, or maintain rental property that is or will be owner-
occupied within the coming year, different rules apply:
    i. Credit extended to acquire the rental property is deemed to be 
for business purposes if it contains more than 2 housing units.
    ii. Credit extended to improve or maintain the rental property is 
deemed to be for business purposes if it contains more than 4 housing 
units. Since the amended statute defines dwelling to include 1 to 4 
housing units, this rule preserves the right of rescission for credit 
extended for purposes other than acquisition. Neither of these rules 
means that an extension of credit for property containing fewer than 
the requisite number of units is necessarily consumer credit. In such 
cases, the determination of whether it is business or consumer credit 
should be made by considering the factors listed in comment 3(a)-3.
    6. Business credit later refinanced. Business-purpose credit that 
is exempt from the regulation may later be rewritten for consumer 
purposes. Such a transaction is consumer credit requiring disclosures 
only if the existing obligation is satisfied and replaced by a new 
obligation made for consumer purposes undertaken by the same obligor.
    7. Credit card renewal. A consumer-purpose credit card that is 
subject to the regulation may be converted into a business-purpose 
credit card at the time of its renewal, and the resulting business-
purpose credit card would be exempt from the regulation. Conversely, a 
business-purpose credit card that is exempt from the regulation may be 
converted into a consumer-purpose credit card at the time of its 
renewal, and the resulting consumer-purpose credit card would be 
subject to the regulation.
    8. Agricultural purpose. An agricultural purpose includes the 
planting, propagating, nurturing, harvesting, catching, storing, 
exhibiting, marketing, transporting, processing, or manufacturing of 
food, beverages (including alcoholic beverages), flowers, trees, 
livestock, poultry, bees, wildlife, fish, or shellfish by a natural 
person engaged in farming, fishing, or growing crops, flowers, trees, 
livestock, poultry, bees, or wildlife. The exemption also applies to a 
transaction involving real property that includes a dwelling (for 
example, the purchase of a farm with a homestead) if the transaction is 
primarily for agricultural purposes.
    9. Organizational credit. The exemption for transactions in which 
the borrower is not a natural person applies, for example, to loans to 
corporations, partnerships, associations, churches, unions, and 
fraternal organizations. The exemption applies regardless of the 
purpose of the credit extension and regardless of the fact that a 
natural person may guarantee or provide security for the credit.
    10. Land trusts. Credit extended for consumer purposes to a land 
trust is considered to be credit extended to a natural person rather 
than credit extended to an organization. In some jurisdictions, a 
financial institution financing a residential real estate transaction 
for an individual uses a land trust mechanism. Title to the property is 
conveyed to the land trust for which the financial institution itself 
is trustee. The underlying installment note is executed by the 
financial institution in its capacity as trustee and payment is secured 
by a trust deed, reflecting title in the financial institution as 
trustee. In some instances, the consumer executes a personal guaranty 
of the indebtedness. The note provides that it is payable only out of 
the property specifically described in the trust deed and that the 
trustee has no personal liability on the note. Assuming the 
transactions are for personal, family, or household purposes, these 
transactions are subject to the regulation since in substance (if not 
form) consumer credit is being extended.
    3(b) Credit over $25,000 not secured by real property or a 
dwelling.
    1. Coverage. Since a mobile home can be a dwelling under Sec.  
226.2(a)(19), this exemption does not apply to a credit extension 
secured by a mobile home used or expected to be used as the principal 
dwelling of the consumer, even if the credit exceeds $25,000. A loan 
commitment for closed-end credit in excess of $25,000 is exempt even 
though the amounts actually drawn never actually reach $25,000.
    2. Open-end credit. i. An open-end credit plan is exempt under 
Sec.  226.3(b) (unless secured by real property or personal property 
used or expected to be used as the consumer's principal dwelling) if 
either of the following conditions is met:
    A. The creditor makes a firm commitment to lend over $25,000 with 
no requirement of additional credit information for any advances 
(except as permitted from time to time pursuant to Sec.  226.2(a)(20)).
    B. The initial extension of credit on the line exceeds $25,000.
    ii. If a security interest is taken at a later time in any real 
property, or in personal property used or expected to be used as the 
consumer's principal dwelling, the plan would no longer be exempt. The 
creditor must comply with all of the requirements of the regulation 
including, for example, providing the consumer with an initial 
disclosure statement. If the security interest being added is in the 
consumer's principal dwelling, the creditor must also give the consumer 
the right to rescind the security interest. (See the commentary to 
Sec.  226.15 concerning the right of rescission.)
    3. Closed-end credit--subsequent changes. A closed-end loan for 
over $25,000 may later be rewritten for $25,000 or less, or a security 
interest in real property or in personal property used or expected to 
be used as the consumer's principal dwelling may be added to an 
extension of credit for over $25,000. Such a transaction is consumer 
credit requiring disclosures only if the existing obligation is 
satisfied and replaced by a new obligation made for consumer purposes 
undertaken by the same obligor. (See the commentary to Sec.  
226.23(a)(1) regarding the right of rescission when a security interest 
in a

[[Page 54265]]

consumer's principal dwelling is added to a previously exempt 
transaction.)
    3(c) Public utility credit.
    1. Examples. Examples of public utility services include:
    i. General.
    A. Gas, water, or electrical services.
    B. Cable television services.
    C. Installation of new sewer lines, water lines, conduits, 
telephone poles, or metering equipment in an area not already serviced 
by the utility.
    ii. Extensions of credit not covered. The exemption does not apply 
to extensions of credit, for example:
    A. To purchase appliances such as gas or electric ranges, grills, 
or telephones.
    B. To finance home improvements such as new heating or air 
conditioning systems.
    3(d) Securities or commodities accounts.
    1. Coverage. This exemption does not apply to a transaction with a 
broker registered solely with the State, or to a separate credit 
extension in which the proceeds are used to purchase securities.
    3(e) Home fuel budget plans.
    1. Definition. Under a typical home fuel budget plan, the fuel 
dealer estimates the total cost of fuel for the season, bills the 
customer for an average monthly payment, and makes an adjustment in the 
final payment for any difference between the estimated and the actual 
cost of the fuel. Fuel is delivered as needed, no finance charge is 
assessed, and the customer may withdraw from the plan at any time. 
Under these circumstances, the arrangement is exempt from the 
regulation, even if a charge to cover the billing costs is imposed.
    3(f) Student loan programs.
    1. Coverage. This exemption applies to loans made, insured, or 
guaranteed under title IV of the Higher Education Act of 1965 (20 
U.S.C. 1070 et seq.). This exemption does not apply to private 
education loans as defined by Sec.  226.46(b)(5).


Sec.  226.4  Finance Charge.

    4(a) Definition.
    1. Charges in comparable cash transactions. Charges imposed 
uniformly in cash and credit transactions are not finance charges. In 
determining whether an item is a finance charge, the creditor should 
compare the credit transaction in question with a similar cash 
transaction. A creditor financing the sale of property or services may 
compare charges with those payable in a similar cash transaction by the 
seller of the property or service.
    i. For example, the following items are not finance charges:
    A. Taxes, license fees, or registration fees paid by both cash and 
credit customers.
    B. Discounts that are available to cash and credit customers, such 
as quantity discounts.
    C. Discounts available to a particular group of consumers because 
they meet certain criteria, such as being members of an organization or 
having accounts at a particular financial institution. This is the case 
even if an individual must pay cash to obtain the discount, provided 
that credit customers who are members of the group and do not qualify 
for the discount pay no more than the nonmember cash customers.
    D. Charges for a service policy, auto club membership, or policy of 
insurance against latent defects offered to or required of both cash 
and credit customers for the same price.
    ii. In contrast, the following items are finance charges:
    A. Inspection and handling fees for the staged disbursement of 
construction-loan proceeds.
    B. Fees for preparing a Truth in Lending disclosure statement, if 
permitted by law (for example, the Real Estate Settlement Procedures 
Act prohibits such charges in certain transactions secured by real 
property).
    C. Charges for a required maintenance or service contract imposed 
only in a credit transaction.
    iii. If the charge in a credit transaction exceeds the charge 
imposed in a comparable cash transaction, only the difference is a 
finance charge. For example:
    A. If an escrow agent is used in both cash and credit sales of real 
estate and the agent's charge is $100 in a cash transaction and $150 in 
a credit transaction, only $50 is a finance charge.
    2. Costs of doing business. Charges absorbed by the creditor as a 
cost of doing business are not finance charges, even though the 
creditor may take such costs into consideration in determining the 
interest rate to be charged or the cash price of the property or 
service sold. However, if the creditor separately imposes a charge on 
the consumer to cover certain costs, the charge is a finance charge if 
it otherwise meets the definition. For example:
    i. A discount imposed on a credit obligation when it is assigned by 
a seller-creditor to another party is not a finance charge as long as 
the discount is not separately imposed on the consumer. (See Sec.  
226.4(b)(6).)
    ii. A tax imposed by a State or other governmental body on a 
creditor is not a finance charge if the creditor absorbs the tax as a 
cost of doing business and does not separately impose the tax on the 
consumer. (For additional discussion of the treatment of taxes, see 
other commentary to Sec.  226.4(a).)
    3. Forfeitures of interest. If the creditor reduces the interest 
rate it pays or stops paying interest on the consumer's deposit account 
or any portion of it for the term of a credit transaction (including, 
for example, an overdraft on a checking account or a loan secured by a 
certificate of deposit), the interest lost is a finance charge. (See 
the commentary to Sec.  226.4(c)(6).) For example:
    A. A consumer borrows $5,000 for 90 days and secures it with a 
$10,000 certificate of deposit paying 15% interest. The creditor 
charges the consumer an interest rate of 6% on the loan and stops 
paying interest on $5,000 of the $10,000 certificate for the term of 
the loan. The interest lost is a finance charge and must be reflected 
in the annual percentage rate on the loan.
    B. However, the consumer must be entitled to the interest that is 
not paid in order for the lost interest to be a finance charge. For 
example:
    iii. A consumer wishes to buy from a financial institution a 
$10,000 certificate of deposit paying 15% interest but has only $4,000. 
The financial institution offers to lend the consumer $6,000 at an 
interest rate of 6% but will pay the 15% interest only on the amount of 
the consumer's deposit, $4,000. The creditor's failure to pay interest 
on the $6,000 does not result in an additional finance charge on the 
extension of credit, provided the consumer is entitled by the deposit 
agreement with the financial institution to interest only on the amount 
of the consumer's deposit.
    iv. A consumer enters into a combined time deposit/credit agreement 
with a financial institution that establishes a time deposit account 
and an open-end line of credit. The line of credit may be used to 
borrow against the funds in the time deposit. The agreement provides 
for an interest rate on any credit extension of, for example, 1%. In 
addition, the agreement states that the creditor will pay 0% interest 
on the amount of the time deposit that corresponds to the amount of the 
credit extension(s). The interest that is not paid on the time deposit 
by the financial institution is not a finance charge (and therefore 
does not affect the annual percentage rate computation).
    4. Treatment of transaction fees on credit card plans. Any 
transaction charge imposed on a cardholder by a card issuer is a 
finance charge, regardless of whether the issuer imposes the same, 
greater, or lesser charge on

[[Page 54266]]

withdrawals of funds from an asset account such as a checking or 
savings account. For example:
    i. Any charge imposed on a credit cardholder by a card issuer for 
the use of an automated teller machine (ATM) to obtain a cash advance 
(whether in a proprietary, shared, interchange, or other system) is a 
finance charge regardless of whether the card issuer imposes a charge 
on its debit cardholders for using the ATM to withdraw cash from a 
consumer asset account, such as a checking or savings account.
    ii. Any charge imposed on a credit cardholder for making a purchase 
or obtaining a cash advance outside the United States, with a foreign 
merchant, or in a foreign currency is a finance charge, regardless of 
whether a charge is imposed on debit cardholders for such transactions. 
The following principles apply in determining what is a foreign 
transaction fee and the amount of the fee:
    A. Included are (1) fees imposed when transactions are made in a 
foreign currency and converted to U.S. dollars; (2) fees imposed when 
transactions are made in U.S. dollars outside the U.S.; and (3) fees 
imposed when transactions are made (whether in a foreign currency or in 
U.S. dollars) with a foreign merchant, such as via a merchant's Web 
site. For example, a consumer may use a credit card to make a purchase 
in Bermuda, in U.S. dollars, and the card issuer may impose a fee 
because the transaction took place outside the United States.
    B. Included are fees imposed by the card issuer and fees imposed by 
a third party that performs the conversion, such as a credit card 
network or the card issuer's corporate parent. (For example, in a 
transaction processed through a credit card network, the network may 
impose a 1 percent charge and the card-issuing bank may impose an 
additional 2 percent charge, for a total of a 3 percentage point 
foreign transaction fee being imposed on the consumer.)
    C. Fees imposed by a third party are included only if they are 
directly passed on to the consumer. For example, if a credit card 
network imposes a 1 percent fee on the card issuer, but the card issuer 
absorbs the fee as a cost of doing business (and only passes it on to 
consumers in the general sense that the interest and fees are imposed 
on all its customers to recover its costs), then the fee is not a 
foreign transaction fee and need not be disclosed. In another example, 
if the credit card network imposes a 1 percent fee for a foreign 
transaction on the card issuer, and the card issuer imposes this same 
fee on the consumer who engaged in the foreign transaction, then the 
fee is a foreign transaction fee and a finance charge.
    D. A card issuer is not required to disclose a fee imposed by a 
merchant. For example, if the merchant itself performs the currency 
conversion and adds a fee, this fee need not be disclosed by the card 
issuer. Under Sec.  226.9(d), a card issuer is not obligated to 
disclose finance charges imposed by a party honoring a credit card, 
such as a merchant, although the merchant is required to disclose such 
a finance charge if the merchant is subject to the Truth in Lending Act 
and Regulation Z.
    E. The foreign transaction fee is determined by first calculating 
the dollar amount of the transaction by using a currency conversion 
rate outside the card issuer's and third party's control. Any amount in 
excess of that dollar amount is a foreign transaction fee. Conversion 
rates outside the card issuer's and third party's control include, for 
example, a rate selected from the range of rates available in the 
wholesale currency exchange markets, an average of the highest and 
lowest rates available in such markets, or a government-mandated or 
government-managed exchange rate (or a rate selected from a range of 
such rates).
    F. The rate used for a particular transaction need not be the same 
rate that the card issuer (or third party) itself obtains in its 
currency conversion operations. In addition, the rate used for a 
particular transaction need not be the rate in effect on the date of 
the transaction (purchase or cash advance).
    5. Taxes.
    i. Generally, a tax imposed by a State or other governmental body 
solely on a creditor is a finance charge if the creditor separately 
imposes the charge on the consumer.
    ii. In contrast, a tax is not a finance charge (even if it is 
collected by the creditor) if applicable law imposes the tax:
    A. Solely on the consumer;
    B. On the creditor and the consumer jointly;
    C. On the credit transaction, without indicating which party is 
liable for the tax; or
    D. On the creditor, if applicable law directs or authorizes the 
creditor to pass the tax on to the consumer. (For purposes of this 
section, if applicable law is silent as to passing on the tax, the law 
is deemed not to authorize passing it on.)
    iii. For example, a stamp tax, property tax, intangible tax, or any 
other State or local tax imposed on the consumer, or on the credit 
transaction, is not a finance charge even if the tax is collected by 
the creditor.
    iv. In addition, a tax is not a finance charge if it is excluded 
from the finance charge by another provision of the regulation or 
commentary (for example, if the tax is imposed uniformly in cash and 
credit transactions).
    4(a)(1) Charges by third parties.
    1. Choosing the provider of a required service. An example of a 
third-party charge included in the finance charge is the cost of 
required mortgage insurance, even if the consumer is allowed to choose 
the insurer.
    2. Annuities associated with reverse mortgages. Some creditors 
offer annuities in connection with a reverse-mortgage transaction. The 
amount of the premium is a finance charge if the creditor requires the 
purchase of the annuity incident to the credit. Examples include the 
following:
    i. The credit documents reflect the purchase of an annuity from a 
specific provider or providers.
    ii. The creditor assesses an additional charge on consumers who do 
not purchase an annuity from a specific provider.
    iii. The annuity is intended to replace in whole or in part the 
creditor's payments to the consumer either immediately or at some 
future date.
    4(a)(2) Special rule; closing agent charges.
    1. General. This rule applies to charges by a third party serving 
as the closing agent for the particular loan. An example of a closing 
agent charge included in the finance charge is a courier fee where the 
creditor requires the use of a courier.
    2. Required closing agent. If the creditor requires the use of a 
closing agent, fees charged by the closing agent are included in the 
finance charge only if the creditor requires the particular service, 
requires the imposition of the charge, or retains a portion of the 
charge. Fees charged by a third-party closing agent may be otherwise 
excluded from the finance charge under Sec.  226.4. For example, a fee 
that would be paid in a comparable cash transaction may be excluded 
under Sec.  226.4(a). A charge for conducting or attending a closing is 
a finance charge and may be excluded only if the charge is included in 
and is incidental to a lump-sum fee excluded under Sec.  226.4(c)(7).
    4(a)(3) Special rule; mortgage broker fees.
    1. General. A fee charged by a mortgage broker is excluded from the 
finance charge if it is the type of fee that is also excluded when 
charged by the creditor. For example, to exclude an

[[Page 54267]]

application fee from the finance charge under Sec.  226.4(c)(1), a 
mortgage broker must charge the fee to all applicants for credit, 
whether or not credit is extended.
    2. Coverage. This rule applies to charges paid by consumers to a 
mortgage broker in connection with a consumer credit transaction 
secured by real property or a dwelling.
    3. Compensation by lender. The rule requires all mortgage broker 
fees to be included in the finance charge. Creditors sometimes 
compensate mortgage brokers under a separate arrangement with those 
parties. Creditors may draw on amounts paid by the consumer, such as 
points or closing costs, to fund their payment to the broker. 
Compensation paid by a creditor to a mortgage broker under an agreement 
is not included as a separate component of a consumer's total finance 
charge (although this compensation may be reflected in the finance 
charge if it comes from amounts paid by the consumer to the creditor 
that are finance charges, such as points and interest).
    4(b) Examples of finance charges.
    1. Relationship to other provisions. Charges or fees shown as 
examples of finance charges in Sec.  226.4(b) may be excludable under 
Sec.  226.4(c), (d), or (e). For example:
    i. Premiums for credit life insurance, shown as an example of a 
finance charge under Sec.  226.4(b)(7), may be excluded if the 
requirements of Sec.  226.4(d)(1) are met.
    ii Appraisal fees mentioned in Sec.  226.4(b)(4) are excluded for 
real property or residential mortgage transactions under Sec.  
226.4(c)(7).
    Paragraph 4(b)(2).
    1. Checking account charges. A checking or transaction account 
charge imposed in connection with a credit feature is a finance charge 
under Sec.  226.4(b)(2) to the extent the charge exceeds the charge for 
a similar account without a credit feature. If a charge for an account 
with a credit feature does not exceed the charge for an account without 
a credit feature, the charge is not a finance charge under Sec.  
226.4(b)(2). To illustrate:
    i. A $5 service charge is imposed on an account with an overdraft 
line of credit (where the institution has agreed in writing to pay an 
overdraft), while a $3 service charge is imposed on an account without 
a credit feature; the $2 difference is a finance charge. (If the 
difference is not related to account activity, however, it may be 
excludable as a participation fee. See the commentary to Sec.  
226.4(c)(4).)
    ii. A $5 service charge is imposed for each item that results in an 
overdraft on an account with an overdraft line of credit, while a $25 
service charge is imposed for paying or returning each item on a 
similar account without a credit feature; the $5 charge is not a 
finance charge.
    Paragraph 4(b)(3).
    1. Assumption fees. The assumption fees mentioned in Sec.  
226.4(b)(3) are finance charges only when the assumption occurs and the 
fee is imposed on the new buyer. The assumption fee is a finance charge 
in the new buyer's transaction.
    Paragraph 4(b)(5).
    1. Credit loss insurance. Common examples of the insurance against 
credit loss mentioned in Sec.  226.4(b)(5) are mortgage guaranty 
insurance, holder in due course insurance, and repossession insurance. 
Such premiums must be included in the finance charge only for the 
period that the creditor requires the insurance to be maintained.
    2. Residual value insurance. Where a creditor requires a consumer 
to maintain residual value insurance or where the creditor is a 
beneficiary of a residual value insurance policy written in connection 
with an extension of credit (as is the case in some forms of automobile 
balloon-payment financing, for example), the premiums for the insurance 
must be included in the finance charge for the period that the 
insurance is to be maintained. If a creditor pays for residual value 
insurance and absorbs the payment as a cost of doing business, such 
costs are not considered finance charges. (See comment 4(a)-2.)
    Paragraphs 4(b)(7) and (b)(8).
    1. Pre-existing insurance policy. The insurance discussed in Sec.  
226.4(b)(7) and (b)(8) does not include an insurance policy (such as a 
life or an automobile collision insurance policy) that is already owned 
by the consumer, even if the policy is assigned to or otherwise made 
payable to the creditor to satisfy an insurance requirement. Such a 
policy is not ``written in connection with'' the transaction, as long 
as the insurance was not purchased for use in that credit extension, 
since it was previously owned by the consumer.
    2. Insurance written in connection with a transaction. Credit 
insurance sold before or after an open-end (not home-secured) plan is 
opened is considered ``written in connection with a credit 
transaction.'' Insurance sold after consummation in closed-end credit 
transactions or after the opening of a home-equity plan subject to the 
requirements of Sec.  226.5b is not considered ``written in connection 
with'' the credit transaction if the insurance is written because of 
the consumer's default (for example, by failing to obtain or maintain 
required property insurance) or because the consumer requests insurance 
after consummation or the opening of a home-equity plan subject to the 
requirements of Sec.  226.5b (although credit-sale disclosures may be 
required for the insurance sold after consummation if it is financed).
    3. Substitution of life insurance. The premium for a life insurance 
policy purchased and assigned to satisfy a credit life insurance 
requirement must be included in the finance charge, but only to the 
extent of the cost of the credit life insurance if purchased from the 
creditor or the actual cost of the policy (if that is less than the 
cost of the insurance available from the creditor). If the creditor 
does not offer the required insurance, the premium to be included in 
the finance charge is the cost of a policy of insurance of the type, 
amount, and term required by the creditor.
    4. Other insurance. Fees for required insurance not of the types 
described in Sec.  226.4(b)(7) and (b)(8) are finance charges and are 
not excludable. For example:
    i. The premium for a hospitalization insurance policy, if it is 
required to be purchased only in a credit transaction, is a finance 
charge.
    Paragraph 4(b)(9).
    1. Discounts for payment by other than credit. The discounts to 
induce payment by other than credit mentioned in Sec.  226.4(b)(9) 
include, for example, the following situation:
    i. The seller of land offers individual tracts for $10,000 each. If 
the purchaser pays cash, the price is $9,000, but if the purchaser 
finances the tract with the seller the price is $10,000. The $1,000 
difference is a finance charge for those who buy the tracts on credit.
    2. Exception for cash discounts.
    i. Creditors may exclude from the finance charge discounts offered 
to consumers for using cash or another means of payment instead of 
using a credit card or an open-end plan. The discount may be in 
whatever amount the seller desires, either as a percentage of the 
regular price (as defined in section 103(z) of the act, as amended) or 
a dollar amount. Pursuant to section 167(b) of the act, this provision 
applies only to transactions involving an open-end credit plan or a 
credit card (whether open-end or closed-end credit is extended on the 
card). The merchant must offer the discount to prospective buyers 
whether or not they are cardholders or members of the open-end credit 
plan. The merchant may, however, make other distinctions. For example:

[[Page 54268]]

    A. The merchant may limit the discount to payment by cash and not 
offer it for payment by check or by use of a debit card.
    B. The merchant may establish a discount plan that allows a 15% 
discount for payment by cash, a 10% discount for payment by check, and 
a 5% discount for payment by a particular credit card. None of these 
discounts is a finance charge.
    ii. Pursuant to section 171(c) of the act, discounts excluded from 
the finance charge under this paragraph are also excluded from 
treatment as a finance charge or other charge for credit under any 
State usury or disclosure laws.
    3. Determination of the regular price.
    i. The regular price is critical in determining whether the 
difference between the price charged to cash customers and credit 
customers is a discount or a surcharge, as these terms are defined in 
amended section 103 of the act. The regular price is defined in section 
103 of the act as--
    * * * the tag or posted price charged for the property or service 
if a single price is tagged or posted, or the price charged for the 
property or service when payment is made by use of an open-end credit 
account or a credit card if either (1) no price is tagged or posted, or 
(2) two prices are tagged or posted. * * *
    ii. For example, in the sale of motor vehicle fuel, the tagged or 
posted price is the price displayed at the pump. As a result, the 
higher price (the open-end credit or credit card price) must be 
displayed at the pump, either alone or along with the cash price. 
Service station operators may designate separate pumps or separate 
islands as being for either cash or credit purchases and display only 
the appropriate prices at the various pumps. If a pump is capable of 
displaying on its meter either a cash or a credit price depending upon 
the consumer's means of payment, both the cash price and the credit 
price must be displayed at the pump. A service station operator may 
display the cash price of fuel by itself on a curb sign, as long as the 
sign clearly indicates that the price is limited to cash purchases.
    4(b)(10) Debt cancellation and debt suspension fees.
    1. Definition. Debt cancellation coverage provides for payment or 
satisfaction of all or part of a debt when a specified event occurs. 
The term ``debt cancellation coverage'' includes guaranteed automobile 
protection, or ``GAP,'' agreements, which pay or satisfy the remaining 
debt after property insurance benefits are exhausted. Debt suspension 
coverage provides for suspension of the obligation to make one or more 
payments on the date(s) otherwise required by the credit agreement, 
when a specified event occurs. The term ``debt suspension'' does not 
include loan payment deferral arrangements in which the triggering 
event is the bank's unilateral decision to allow a deferral of payment 
and the borrower's unilateral election to do so, such as by skipping or 
reducing one or more payments (``skip payments'').
    2. Coverage written in connection with a transaction. Coverage sold 
after consummation in closed-end credit transactions or after the 
opening of a home-equity plan subject to the requirements of Sec.  
226.5b is not ``written in connection with'' the credit transaction if 
the coverage is written because the consumer requests coverage after 
consummation or the opening of a home-equity plan subject to the 
requirements of Sec.  226.5b (although credit-sale disclosures may be 
required for the coverage sold after consummation if it is financed). 
Coverage sold before or after an open-end (not home-secured) plan is 
opened is considered ``written in connection with a credit 
transaction.''
    4(c) Charges excluded from the finance charge.
    Paragraph 4(c)(1).
    1. Application fees. An application fee that is excluded from the 
finance charge is a charge to recover the costs associated with 
processing applications for credit. The fee may cover the costs of 
services such as credit reports, credit investigations, and appraisals. 
The creditor is free to impose the fee in only certain of its loan 
programs, such as mortgage loans. However, if the fee is to be excluded 
from the finance charge under Sec.  226.4(c)(1), it must be charged to 
all applicants, not just to applicants who are approved or who actually 
receive credit.
    Paragraph 4(c)(2).
    1. Late payment charges.
    i. Late payment charges can be excluded from the finance charge 
under Sec.  226.4(c)(2) whether or not the person imposing the charge 
continues to extend credit on the account or continues to provide 
property or services to the consumer. In determining whether a charge 
is for actual unanticipated late payment on a 30-day account, for 
example, factors to be considered include:
    A. The terms of the account. For example, is the consumer required 
by the account terms to pay the account balance in full each month? If 
not, the charge may be a finance charge.
    B. The practices of the creditor in handling the accounts. For 
example, regardless of the terms of the account, does the creditor 
allow consumers to pay the accounts over a period of time without 
demanding payment in full or taking other action to collect? If no 
effort is made to collect the full amount due, the charge may be a 
finance charge.
    ii. Section 226.4(c)(2) applies to late payment charges imposed for 
failure to make payments as agreed, as well as failure to pay an 
account in full when due.
    2. Other excluded charges. Charges for ``delinquency, default, or a 
similar occurrence'' include, for example, charges for reinstatement of 
credit privileges or for submitting as payment a check that is later 
returned unpaid.
    Paragraph 4(c)(3).
    1. Assessing interest on an overdraft balance. A charge on an 
overdraft balance computed by applying a rate of interest to the amount 
of the overdraft is not a finance charge, even though the consumer 
agrees to the charge in the account agreement, unless the financial 
institution agrees in writing that it will pay such items.
    Paragraph 4(c)(4).
    1. Participation fees--periodic basis. The participation fees 
described in Sec.  226.4(c)(4) do not necessarily have to be formal 
membership fees, nor are they limited to credit card plans. The 
provision applies to any credit plan in which payment of a fee is a 
condition of access to the plan itself, but it does not apply to fees 
imposed separately on individual closed-end transactions. The fee may 
be charged on a monthly, annual, or other periodic basis; a one-time, 
non-recurring fee imposed at the time an account is opened is not a fee 
that is charged on a periodic basis, and may not be treated as a 
participation fee.
    2. Participation fees--exclusions. Minimum monthly charges, charges 
for non-use of a credit card, and other charges based on either account 
activity or the amount of credit available under the plan are not 
excluded from the finance charge by Sec.  226.4(c)(4). Thus, for 
example, a fee that is charged and then refunded to the consumer based 
on the extent to which the consumer uses the credit available would be 
a finance charge. (See the commentary to Sec.  226.4(b)(2). Also, see 
comment 14(c)-2 for treatment of certain types of fees excluded in 
determining the annual percentage rate for the periodic statement.)
    Paragraph 4(c)(5).
    1. Seller's points. The seller's points mentioned in Sec.  
226.4(c)(5) include any charges imposed by the creditor upon the 
noncreditor seller of property for providing credit to the buyer or for 
providing credit on certain terms. These charges are excluded from the 
finance charge even if they are passed on to the

[[Page 54269]]

buyer, for example, in the form of a higher sales price. Seller's 
points are frequently involved in real estate transactions guaranteed 
or insured by governmental agencies. A commitment fee paid by a 
noncreditor seller (such as a real estate developer) to the creditor 
should be treated as seller's points. Buyer's points (that is, points 
charged to the buyer by the creditor), however, are finance charges.
    2. Other seller-paid amounts. Mortgage insurance premiums and other 
finance charges are sometimes paid at or before consummation or 
settlement on the borrower's behalf by a noncreditor seller. The 
creditor should treat the payment made by the seller as seller's points 
and exclude it from the finance charge if, based on the seller's 
payment, the consumer is not legally bound to the creditor for the 
charge. A creditor who gives disclosures before the payment has been 
made should base them on the best information reasonably available.
    Paragraph 4(c)(6).
    1. Lost interest. Certain Federal and State laws mandate a 
percentage differential between the interest rate paid on a deposit and 
the rate charged on a loan secured by that deposit. In some situations, 
because of usury limits the creditor must reduce the interest rate paid 
on the deposit and, as a result, the consumer loses some of the 
interest that would otherwise have been earned. Under Sec.  
226.4(c)(6), such ``lost interest'' need not be included in the finance 
charge. This rule applies only to an interest reduction imposed because 
a rate differential is required by law and a usury limit precludes 
compliance by any other means. If the creditor imposes a differential 
that exceeds that required, only the lost interest attributable to the 
excess amount is a finance charge. (See the commentary to Sec.  
226.4(a).)
    Paragraph 4(c)(7).
    1. Real estate or residential mortgage transaction charges. The 
list of charges in Sec.  226.4(c)(7) applies both to residential 
mortgage transactions (which may include, for example, the purchase of 
a mobile home) and to other transactions secured by real estate. The 
fees are excluded from the finance charge even if the services for 
which the fees are imposed are performed by the creditor's employees 
rather than by a third party. In addition, the cost of verifying or 
confirming information connected to the item is also excluded. For 
example, credit-report fees cover not only the cost of the report but 
also the cost of verifying information in the report. In all cases, 
charges excluded under Sec.  226.4(c)(7) must be bona fide and 
reasonable.
    2. Lump-sum charges. If a lump sum charged for several services 
includes a charge that is not excludable, a portion of the total should 
be allocated to that service and included in the finance charge. 
However, a lump sum charged for conducting or attending a closing (for 
example, by a lawyer or a title company) is excluded from the finance 
charge if the charge is primarily for services related to items listed 
in Sec.  226.4(c)(7) (for example, reviewing or completing documents), 
even if other incidental services such as explaining various documents 
or disbursing funds for the parties are performed. The entire charge is 
excluded even if a fee for the incidental services would be a finance 
charge if it were imposed separately.
    3. Charges assessed during the loan term. Real estate or 
residential mortgage transaction charges excluded under Sec.  
226.4(c)(7) are those charges imposed solely in connection with the 
initial decision to grant credit. This would include, for example, a 
fee to search for tax liens on the property or to determine if flood 
insurance is required. The exclusion does not apply to fees for 
services to be performed periodically during the loan term, regardless 
of when the fee is collected. For example, a fee for one or more 
determinations during the loan term of the current tax-lien status or 
flood-insurance requirements is a finance charge, regardless of whether 
the fee is imposed at closing, or when the service is performed. If a 
creditor is uncertain about what portion of a fee to be paid at 
consummation or loan closing is related to the initial decision to 
grant credit, the entire fee may be treated as a finance charge.
    4(d) Insurance and debt cancellation and debt suspension coverage.
    1. General. Section 226.4(d) permits insurance premiums and charges 
and debt cancellation and debt suspension charges to be excluded from 
the finance charge. The required disclosures must be made in writing, 
except as provided in Sec.  226.4(d)(4). The rules on location of 
insurance and debt cancellation and debt suspension disclosures for 
closed-end transactions are in Sec.  226.17(a). For purposes of Sec.  
226.4(d), all references to insurance also include debt cancellation 
and debt suspension coverage unless the context indicates otherwise.
    2. Timing of disclosures. If disclosures are given early, for 
example under Sec.  226.17(f) or Sec.  226.19(a), the creditor need not 
redisclose if the actual premium is different at the time of 
consummation. If insurance disclosures are not given at the time of 
early disclosure and insurance is in fact written in connection with 
the transaction, the disclosures under Sec.  226.4(d) must be made in 
order to exclude the premiums from the finance charge.
    3. Premium rate increases. The creditor should disclose the premium 
amount based on the rates currently in effect and need not designate it 
as an estimate even if the premium rates may increase. An increase in 
insurance rates after consummation of a closed-end credit transaction 
or during the life of an open-end credit plan does not require 
redisclosure in order to exclude the additional premium from treatment 
as a finance charge.
    4. Unit-cost disclosures.
    i. Open-end credit. The premium or fee for insurance or debt 
cancellation or debt suspension for the initial term of coverage may be 
disclosed on a unit-cost basis in open-end credit transactions. The 
cost per unit should be based on the initial term of coverage, unless 
one of the options under comment 4(d)-12 is available.
    ii. Closed-end credit. One of the transactions for which unit-cost 
disclosures (such as 50 cents per year for each $100 of the amount 
financed) may be used in place of the total insurance premium involves 
a particular kind of insurance plan. For example, a consumer with a 
current indebtedness of $8,000 is covered by a plan of credit life 
insurance coverage with a maximum of $10,000. The consumer requests an 
additional $4,000 loan to be covered by the same insurance plan. Since 
the $4,000 loan exceeds, in part, the maximum amount of indebtedness 
that can be covered by the plan, the creditor may properly give the 
insurance-cost disclosures on the $4,000 loan on a unit-cost basis.
    5. Required credit life insurance; debt cancellation or suspension 
coverage. Credit life, accident, health, or loss-of-income insurance, 
and debt cancellation and suspension coverage described in Sec.  
226.4(b)(10), must be voluntary in order for the premium or charges to 
be excluded from the finance charge. Whether the insurance or coverage 
is in fact required or optional is a factual question. If the insurance 
or coverage is required, the premiums must be included in the finance 
charge, whether the insurance or coverage is purchased from the 
creditor or from a third party. If the consumer is required to elect 
one of several options--such as to purchase credit life insurance, or 
to assign an existing life insurance policy, or to pledge security such 
as a certificate of deposit--and the consumer purchases the credit life 
insurance policy, the premium must be included in the finance charge. 
(If the consumer assigns a preexisting policy or pledges security

[[Page 54270]]

instead, no premium is included in the finance charge. The security 
interest would be disclosed under Sec.  226.6(a)(4), Sec.  
226.6(b)(5)(ii), or Sec.  226.18(m). See the commentary to Sec.  
226.4(b)(7) and (b)(8).)
    6. Other types of voluntary insurance. Insurance is not credit 
life, accident, health, or loss-of-income insurance if the creditor or 
the credit account of the consumer is not the beneficiary of the 
insurance coverage. If the premium for such insurance is not imposed by 
the creditor as an incident to or a condition of credit, it is not 
covered by Sec.  226.4.
    7. Signatures. If the creditor offers a number of insurance options 
under Sec.  226.4(d), the creditor may provide a means for the consumer 
to sign or initial for each option, or it may provide for a single 
authorizing signature or initial with the options selected designated 
by some other means, such as a check mark. The insurance authorization 
may be signed or initialed by any consumer, as defined in Sec.  
226.2(a)(11), or by an authorized user on a credit card account.
    8. Property insurance. To exclude property insurance premiums or 
charges from the finance charge, the creditor must allow the consumer 
to choose the insurer and disclose that fact. This disclosure must be 
made whether or not the property insurance is available from or through 
the creditor. The requirement that an option be given does not require 
that the insurance be readily available from other sources. The premium 
or charge must be disclosed only if the consumer elects to purchase the 
insurance from the creditor; in such a case, the creditor must also 
disclose the term of the property insurance coverage if it is less than 
the term of the obligation.
    9. Single-interest insurance. Blanket and specific single-interest 
coverage are treated the same for purposes of the regulation. A charge 
for either type of single-interest insurance may be excluded from the 
finance charge if:
    i. The insurer waives any right of subrogation.
    ii. The other requirements of Sec.  226.4(d)(2) are met. This 
includes, of course, giving the consumer the option of obtaining the 
insurance from a person of the consumer's choice. The creditor need not 
ascertain whether the consumer is able to purchase the insurance from 
someone else.
    10. Single-interest insurance defined. The term single-interest 
insurance as used in the regulation refers only to the types of 
coverage traditionally included in the term vendor's single-interest 
insurance (or VSI), that is, protection of tangible property against 
normal property damage, concealment, confiscation, conversion, 
embezzlement, and skip. Some comprehensive insurance policies may 
include a variety of additional coverages, such as repossession 
insurance and holder-in-due-course insurance. These types of coverage 
do not constitute single-interest insurance for purposes of the 
regulation, and premiums for them do not qualify for exclusion from the 
finance charge under Sec.  226.4(d). If a policy that is primarily VSI 
also provides coverages that are not VSI or other property insurance, a 
portion of the premiums must be allocated to the nonexcludable 
coverages and included in the finance charge. However, such allocation 
is not required if the total premium in fact attributable to all of the 
non-VSI coverages included in the policy is $1.00 or less (or $5.00 or 
less in the case of a multiyear policy).
    11. Initial term.
    i. The initial term of insurance or debt cancellation or debt 
suspension coverage determines the period for which a premium amount 
must be disclosed, unless one of the options discussed under comment 
4(d)-12 is available. For purposes of Sec.  226.4(d), the initial term 
is the period for which the insurer or creditor is obligated to provide 
coverage, even though the consumer may be allowed to cancel the 
coverage or coverage may end due to nonpayment before that term 
expires.
    ii. For example:
    A. The initial term of a property insurance policy on an automobile 
that is written for one year is one year even though premiums are paid 
monthly and the term of the credit transaction is four years.
    B. The initial term of an insurance policy is the full term of the 
credit transaction if the consumer pays or finances a single premium in 
advance.
    12. Initial term; alternative.
    i. General. A creditor has the option of providing cost disclosures 
on the basis of one year of insurance or debt cancellation or debt 
suspension coverage instead of a longer initial term (provided the 
premium or fee is clearly labeled as being for one year) if:
    A. The initial term is indefinite or not clear, or
    B. The consumer has agreed to pay a premium or fee that is assessed 
periodically but the consumer is under no obligation to continue the 
coverage, whether or not the consumer has made an initial payment.
    ii. Open-end plans. For open-end plans, a creditor also has the 
option of providing unit-cost disclosure on the basis of a period that 
is less than one year if the consumer has agreed to pay a premium or 
fee that is assessed periodically, for example monthly, but the 
consumer is under no obligation to continue the coverage.
    iii. Examples. To illustrate:
    A. A credit life insurance policy providing coverage for a 30-year 
mortgage loan has an initial term of 30 years, even though premiums are 
paid monthly and the consumer is not required to continue the coverage. 
Disclosures may be based on the initial term, but the creditor also has 
the option of making disclosures on the basis of coverage for an 
assumed initial term of one year.
    13. Loss-of-income insurance. The loss-of-income insurance 
mentioned in Sec.  226.4(d) includes involuntary unemployment 
insurance, which provides that some or all of the consumer's payments 
will be made if the consumer becomes unemployed involuntarily.
    4(d)(3) Voluntary debt cancellation or debt suspension fees.
    1. General. Fees charged for the specialized form of debt 
cancellation agreement known as guaranteed automobile protection 
(``GAP'') agreements must be disclosed according to Sec.  226.4(d)(3) 
rather than according to Sec.  226.4(d)(2) for property insurance.
    2. Disclosures. Creditors can comply with Sec.  226.4(d)(3) by 
providing a disclosure that refers to debt cancellation or debt 
suspension coverage whether or not the coverage is considered 
insurance. Creditors may use the model credit insurance disclosures 
only if the debt cancellation or debt suspension coverage constitutes 
insurance under State law. (See Model Clauses and Samples at G-16 and 
H-17 in appendix G and appendix H to part 226 for guidance on how to 
provide the disclosure required by Sec.  226.4(d)(3)(iii) for debt 
suspension products.)
    3. Multiple events. If debt cancellation or debt suspension 
coverage for two or more events is provided at a single charge, the 
entire charge may be excluded from the finance charge if at least one 
of the events is accident or loss of life, health, or income and the 
conditions specified in Sec.  226.4(d)(3) or, as applicable, Sec.  
226.4(d)(4), are satisfied.
    4. Disclosures in programs combining debt cancellation and debt 
suspension features. If the consumer's debt can be cancelled under 
certain circumstances, the disclosure may be modified to reflect that 
fact. The disclosure could, for example, state (in addition to the 
language required by Sec.  226.4(d)(3)(iii)) that ``In some 
circumstances, my debt may be cancelled.'' However, the disclosure 
would not be permitted to list the specific events that would result in 
debt cancellation.

[[Page 54271]]

    4(d)(4) Telephone purchases.
    1. Affirmative request. A creditor would not satisfy the 
requirement to obtain a consumer's affirmative request if the 
``request'' was a response to a script that uses leading questions or 
negative consent. A question asking whether the consumer wishes to 
enroll in the credit insurance or debt cancellation or suspension plan 
and seeking a yes-or-no response (such as ``Do you want to enroll in 
this optional debt cancellation plan?'') would not be considered 
leading.
    4(e) Certain security interest charges.
    1. Examples.
    i. Excludable charges. Sums must be actually paid to public 
officials to be excluded from the finance charge under Sec.  
226.4(e)(1) and (e)(3). Examples are charges or other fees required for 
filing or recording security agreements, mortgages, continuation 
statements, termination statements, and similar documents, as well as 
intangible property or other taxes even when the charges or fees are 
imposed by the State solely on the creditor and charged to the consumer 
(if the tax must be paid to record a security agreement). (See comment 
4(a)-5 regarding the treatment of taxes, generally.)
    ii. Charges not excludable. If the obligation is between the 
creditor and a third party (an assignee, for example), charges or other 
fees for filing or recording security agreements, mortgages, 
continuation statements, termination statements, and similar documents 
relating to that obligation are not excludable from the finance charge 
under this section.
    2. Itemization. The various charges described in Sec.  226.4(e)(1) 
and (e)(3) may be totaled and disclosed as an aggregate sum, or they 
may be itemized by the specific fees and taxes imposed. If an aggregate 
sum is disclosed, a general term such as security interest fees or 
filing fees may be used.
    3. Notary fees. In order for a notary fee to be excluded under 
Sec.  226.4(e)(1), all of the following conditions must be met:
    i. The document to be notarized is one used to perfect, release, or 
continue a security interest.
    ii. The document is required by law to be notarized.
    iii. A notary is considered a public official under applicable law.
    iv. The amount of the fee is set or authorized by law.
    4. Nonfiling insurance. The exclusion in Sec.  226.4(e)(2) is 
available only if nonfiling insurance is purchased. If the creditor 
collects and simply retains a fee as a sort of ``self-insurance'' 
against nonfiling, it may not be excluded from the finance charge. If 
the nonfiling insurance premium exceeds the amount of the fees 
excludable from the finance charge under Sec.  226.4(e)(1), only the 
excess is a finance charge. For example:
    i. The fee for perfecting a security interest is $5.00 and the fee 
for releasing the security interest is $3.00. The creditor charges 
$10.00 for nonfiling insurance. Only $8.00 of the $10.00 is excludable 
from the finance charge.
    4(f) Prohibited offsets.
    1. Earnings on deposits or investments. The rule that the creditor 
shall not deduct any earnings by the consumer on deposits or 
investments applies whether or not the creditor has a security interest 
in the property.

Subpart B--Open-end Credit


Sec.  226.5  General Disclosure Requirements.

    5(a) Form of disclosures.
    5(a)(1) General.
    1. Clear and conspicuous standard. The ``clear and conspicuous'' 
standard generally requires that disclosures be in a reasonably 
understandable form. Disclosures for credit card applications and 
solicitations under Sec.  226.5a, highlighted account-opening 
disclosures under Sec.  226.6(b)(1), highlighted disclosure on checks 
that access a credit card under Sec.  226.9(b)(3), highlighted change-
in-terms disclosures under Sec.  226.9(c)(2)(iv)(C), and highlighted 
disclosures when a rate is increased due to delinquency, default or for 
a penalty under Sec.  226.9(g)(3)(ii) must also be readily noticeable 
to the consumer.
    2. Clear and conspicuous--reasonably understandable form. Except 
where otherwise provided, the reasonably understandable form standard 
does not require that disclosures be segregated from other material or 
located in any particular place on the disclosure statement, or that 
numerical amounts or percentages be in any particular type size. For 
disclosures that are given orally, the standard requires that they be 
given at a speed and volume sufficient for a consumer to hear and 
comprehend them. (See comment 5(b)(1)(ii)-1.) Except where otherwise 
provided, the standard does not prohibit:
    i. Pluralizing required terminology (``finance charge'' and 
``annual percentage rate'').
    ii. Adding to the required disclosures such items as contractual 
provisions, explanations of contract terms, State disclosures, and 
translations.
    iii. Sending promotional material with the required disclosures.
    iv. Using commonly accepted or readily understandable abbreviations 
(such as ``mo.'' for ``month'' or ``Tx.'' for ``Texas'') in making any 
required disclosures.
    v. Using codes or symbols such as ``APR'' (for annual percentage 
rate), ``FC'' (for finance charge), or ``Cr'' (for credit balance), so 
long as a legend or description of the code or symbol is provided on 
the disclosure statement.
    3. Clear and conspicuous--readily noticeable standard. To meet the 
readily noticeable standard, disclosures for credit card applications 
and solicitations under Sec.  226.5a, highlighted account-opening 
disclosures under Sec.  226.6(b)(1), highlighted disclosures on checks 
that access a credit card account under Sec.  226.9(b)(3), highlighted 
change-in-terms disclosures under Sec.  226.9(c)(2)(iv)(C), and 
highlighted disclosures when a rate is increased due to delinquency, 
default or penalty pricing under Sec.  226.9(g)(3)(ii) must be given in 
a minimum of 10-point font. (See special rule for font size 
requirements for the annual percentage rate for purchases under 
Sec. Sec.  226.5a(b)(1) and 226.6(b)(2)(i).)
    4. Integrated document. The creditor may make both the account-
opening disclosures (Sec.  226.6) and the periodic-statement 
disclosures (Sec.  226.7) on more than one page, and use both the front 
and the reverse sides, except where otherwise indicated, so long as the 
pages constitute an integrated document. An integrated document would 
not include disclosure pages provided to the consumer at different 
times or disclosures interspersed on the same page with promotional 
material. An integrated document would include, for example:
    i. Multiple pages provided in the same envelope that cover related 
material and are folded together, numbered consecutively, or clearly 
labeled to show that they relate to one another; or
    ii. A brochure that contains disclosures and explanatory material 
about a range of services the creditor offers, such as credit, checking 
account, and electronic fund transfer features.
    5. Disclosures covered. Disclosures that must meet the ``clear and 
conspicuous'' standard include all required communications under this 
subpart. Therefore, disclosures made by a person other than the card 
issuer, such as disclosures of finance charges imposed at the time of 
honoring a consumer's credit card under Sec.  226.9(d), and notices, 
such as the correction notice required to be sent to the consumer under 
Sec.  226.13(e), must also be clear and conspicuous.
    Paragraph 5(a)(1)(ii)(A).
    1. Electronic disclosures. Disclosures that need not be provided in 
writing under Sec.  226.5(a)(1)(ii)(A) may be provided in writing, 
orally, or in

[[Page 54272]]

electronic form. If the consumer requests the service in electronic 
form, such as on the creditor's Web site, the specified disclosures may 
be provided in electronic form without regard to the consumer consent 
or other provisions of the Electronic Signatures in Global and National 
Commerce Act (E-Sign Act) (15 U.S.C. 7001 et seq.).
    Paragraph 5(a)(1)(iii).
    1. Disclosures not subject to E-Sign Act. See the commentary to 
Sec.  226.5(a)(1)(ii)(A) regarding disclosures (in addition to those 
specified under Sec.  226.5(a)(1)(iii)) that may be provided in 
electronic form without regard to the consumer consent or other 
provisions of the E-Sign Act.
    5(a)(2) Terminology.
    1. When disclosures must be more conspicuous. For home-equity plans 
subject to Sec.  226.5b, the terms finance charge and annual percentage 
rate, when required to be used with a number, must be disclosed more 
conspicuously than other required disclosures, except in the cases 
provided in Sec.  226.5(a)(2)(ii). At the creditor's option, finance 
charge and annual percentage rate may also be disclosed more 
conspicuously than the other required disclosures even when the 
regulation does not so require. The following examples illustrate these 
rules:
    i. In disclosing the annual percentage rate as required by Sec.  
226.6(a)(1)(ii), the term annual percentage rate is subject to the more 
conspicuous rule.
    ii. In disclosing the amount of the finance charge, required by 
Sec.  226.7(a)(6)(i), the term finance charge is subject to the more 
conspicuous rule.
    iii. Although neither finance charge nor annual percentage rate 
need be emphasized when used as part of general informational material 
or in textual descriptions of other terms, emphasis is permissible in 
such cases. For example, when the terms appear as part of the 
explanations required under Sec.  226.6(a)(1)(iii) and (a)(1)(iv), they 
may be equally conspicuous as the disclosures required under Sec. Sec.  
226.6(a)(1)(ii) and 226.7(a)(7).
    2. Making disclosures more conspicuous. In disclosing the terms 
finance charge and annual percentage rate more conspicuously for home-
equity plans subject to Sec.  226.5b, only the words finance charge and 
annual percentage rate should be accentuated. For example, if the term 
total finance charge is used, only finance charge should be emphasized. 
The disclosures may be made more conspicuous by, for example:
    i. Capitalizing the words when other disclosures are printed in 
lower case.
    ii. Putting them in bold print or a contrasting color.
    iii. Underlining them.
    iv. Setting them off with asterisks.
    v. Printing them in larger type.
    3. Disclosure of figures--exception to more conspicuous rule. For 
home-equity plans subject to Sec.  226.5b, the terms annual percentage 
rate and finance charge need not be more conspicuous than figures 
(including, for example, numbers, percentages, and dollar signs).
    4. Consistent terminology. Language used in disclosures required in 
this subpart must be close enough in meaning to enable the consumer to 
relate the different disclosures; however, the language need not be 
identical.
    5(b) Time of disclosures.
    5(b)(1) Account-opening disclosures.
    5(b)(1)(i) General rule.
    1. Disclosure before the first transaction. When disclosures must 
be furnished ``before the first transaction,'' account-opening 
disclosures must be delivered before the consumer becomes obligated on 
the plan. Examples include:
    i. Purchases. The consumer makes the first purchase, such as when a 
consumer opens a credit plan and makes purchases contemporaneously at a 
retail store, except when the consumer places a telephone call to make 
the purchase and opens the plan contemporaneously (see commentary to 
Sec.  226.5(b)(1)(iii) below).
    ii. Advances. The consumer receives the first advance. If the 
consumer receives a cash advance check at the same time the account-
opening disclosures are provided, disclosures are still timely if the 
consumer can, after receiving the disclosures, return the cash advance 
check to the creditor without obligation (for example, without paying 
finance charges).
    2. Reactivation of suspended account. If an account is temporarily 
suspended (for example, because the consumer has exceeded a credit 
limit, or because a credit card is reported lost or stolen) and then is 
reactivated, no new account-opening disclosures are required.
    3. Reopening closed account. If an account has been closed (for 
example, due to inactivity, cancellation, or expiration) and then is 
reopened, new account-opening disclosures are required. No new account-
opening disclosures are required, however, when the account is closed 
merely to assign it a new number (for example, when a credit card is 
reported lost or stolen) and the ``new'' account then continues on the 
same terms.
    4. Converting closed-end to open-end credit. If a closed-end credit 
transaction is converted to an open-end credit account under a written 
agreement with the consumer, account-opening disclosures under Sec.  
226.6 must be given before the consumer becomes obligated on the open-
end credit plan. (See the commentary to Sec.  226.17 on converting 
open-end credit to closed-end credit.)
    5. Balance transfers. A creditor that solicits the transfer by a 
consumer of outstanding balances from an existing account to a new 
open-end plan must furnish the disclosures required by Sec.  226.6 so 
that the consumer has an opportunity, after receiving the disclosures, 
to contact the creditor before the balance is transferred and decline 
the transfer. For example, assume a consumer responds to a card 
issuer's solicitation for a credit card account subject to Sec.  226.5a 
that offers a range of balance transfer annual percentage rates, based 
on the consumer's creditworthiness. If the creditor opens an account 
for the consumer, the creditor would comply with the timing rules of 
this section by providing the consumer with the annual percentage rate 
(along with the fees and other required disclosures) that would apply 
to the balance transfer in time for the consumer to contact the 
creditor and withdraw the request. A creditor that permits consumers to 
withdraw the request by telephone has met this timing standard if the 
creditor does not effect the balance transfer until 10 days after the 
creditor has sent account-opening disclosures to the consumer, assuming 
the consumer has not contacted the creditor to withdraw the request. 
Card issuers that are subject to the requirements of Sec.  226.5a may 
establish procedures that comply with both Sec. Sec.  226.5a and 226.6 
in a single disclosure statement.
    6. Substitution or replacement of credit card accounts.
    i. Generally. When a card issuer substitutes or replaces an 
existing credit card account with another credit card account, the card 
issuer must either provide notice of the terms of the new account 
consistent with Sec.  226.6(b) or provide notice of the changes in the 
terms of the existing account consistent with Sec.  226.9(c)(2). 
Whether a substitution or replacement results in the opening of a new 
account or a change in the terms of an existing account for purposes of 
the disclosure requirements in Sec. Sec.  226.6(b) and 226.9(c)(2) is 
determined in light of all the relevant facts and circumstances. For 
additional requirements and limitations related to the substitution or 
replacement of credit card accounts, see Sec. Sec.  226.12(a) and 
226.55(d) and comments 12(a)(1)-1 through -8,

[[Page 54273]]

12(a)(2)-1 through -9, 55(b)(3)-3, and 55(d)-1 through -3.
    ii. Relevant facts and circumstances. Listed below are facts and 
circumstances that are relevant to whether a substitution or 
replacement results in the opening of a new account or a change in the 
terms of an existing account for purposes of the disclosure 
requirements in Sec. Sec.  226.6(b) and 226.9(c)(2). When most of the 
facts and circumstances listed below are present, the substitution or 
replacement likely constitutes the opening of a new account for which 
Sec.  226.6(b) disclosures are appropriate. When few of the facts and 
circumstances listed below are present, the substitution or replacement 
likely constitutes a change in the terms of an existing account for 
which Sec.  226.9(c)(2) disclosures are appropriate.
    A. Whether the card issuer provides the consumer with a new credit 
card;
    B. Whether the card issuer provides the consumer with a new account 
number;
    C. Whether the account provides new features or benefits after the 
substitution or replacement (such as rewards on purchases);
    D. Whether the account can be used to conduct transactions at a 
greater or lesser number of merchants after the substitution or 
replacement;
    E. Whether the card issuer implemented the substitution or 
replacement on an individualized basis; and
    F. Whether the account becomes a different type of open-end plan 
after the substitution or replacement (such as when a charge card is 
replaced by a credit card).
    5(b)(1)(ii) Charges imposed as part of an open-end (not home-
secured) plan.
    1. Disclosing charges before the fee is imposed. Creditors may 
disclose charges imposed as part of an open-end (not home-secured) plan 
orally or in writing at any time before a consumer agrees to pay the 
fee or becomes obligated for the charge, unless the charge is specified 
under Sec.  226.6(b)(2). (Charges imposed as part of an open-end (not 
home-secured plan) that are not specified under Sec.  226.6(b)(2) may 
alternatively be disclosed in electronic form; see the commentary to 
Sec.  226.5(a)(1)(ii)(A).) Creditors must provide such disclosures at a 
time and in a manner that a consumer would be likely to notice them. 
For example, if a consumer telephones a card issuer to discuss a 
particular service, a creditor would meet the standard if the creditor 
clearly and conspicuously discloses the fee associated with the service 
that is the topic of the telephone call orally to the consumer. 
Similarly, a creditor providing marketing materials in writing to a 
consumer about a particular service would meet the standard if the 
creditor provided a clear and conspicuous written disclosure of the fee 
for that service in those same materials. A creditor that provides 
written materials to a consumer about a particular service but provides 
a fee disclosure for another service not promoted in such materials 
would not meet the standard. For example, if a creditor provided 
marketing materials promoting payment by Internet, but included the fee 
for a replacement card on such materials with no explanation, the 
creditor would not be disclosing the fee at a time and in a manner that 
the consumer would be likely to notice the fee.
    5(b)(1)(iii) Telephone purchases.
    1. Return policies. In order for creditors to provide disclosures 
in accordance with the timing requirements of this paragraph, consumers 
must be permitted to return merchandise purchased at the time the plan 
was established without paying mailing or return-shipment costs. 
Creditors may impose costs to return subsequent purchases of 
merchandise under the plan, or to return merchandise purchased by other 
means such as a credit card issued by another creditor. A reasonable 
return policy would be of sufficient duration that the consumer is 
likely to have received the disclosures and had sufficient time to make 
a decision about the financing plan before his or her right to return 
the goods expires. Return policies need not provide a right to return 
goods if the consumer consumes or damages the goods, or for installed 
appliances or fixtures, provided there is a reasonable repair or 
replacement policy to cover defective goods or installations. If the 
consumer chooses to reject the financing plan, creditors comply with 
the requirements of this paragraph by permitting the consumer to pay 
for the goods with another reasonable form of payment acceptable to the 
merchant and keep the goods although the creditor cannot require the 
consumer to do so.
    5(b)(1)(iv) Membership fees.
    1. Membership fees. See Sec.  226.5a(b)(2) and related commentary 
for guidance on fees for issuance or availability of a credit or charge 
card.
    2. Rejecting the plan. If a consumer has paid or promised to pay a 
membership fee including an application fee excludable from the finance 
charge under Sec.  226.4(c)(1) before receiving account-opening 
disclosures, the consumer may, after receiving the disclosures, reject 
the plan and not be obligated for the membership fee, application fee, 
or any other fee or charge. A consumer who has received the disclosures 
and uses the account, or makes a payment on the account after receiving 
a billing statement, is deemed not to have rejected the plan.
    3. Using the account. A consumer uses an account by obtaining an 
extension of credit after receiving the account-opening disclosures, 
such as by making a purchase or obtaining an advance. A consumer does 
not ``use'' the account by activating the account. A consumer also does 
not ``use'' the account when the creditor assesses fees on the account 
(such as start-up fees or fees associated with credit insurance or debt 
cancellation or suspension programs agreed to as a part of the 
application and before the consumer receives account-opening 
disclosures). For example, the consumer does not ``use'' the account 
when a creditor sends a billing statement with start-up fees, there is 
no other activity on the account, the consumer does not pay the fees, 
and the creditor subsequently assesses a late fee or interest on the 
unpaid fee balances. A consumer also does not ``use'' the account by 
paying an application fee excludable from the finance charge under 
Sec.  226.4(c)(1) prior to receiving the account-opening disclosures.
    4. Home-equity plans. Creditors offering home-equity plans subject 
to the requirements of Sec.  226.5b are subject to the requirements of 
Sec.  226.5b(h) regarding the collection of fees.
    5(b)(2) Periodic statements.
    Paragraph 5(b)(2)(i).
    1. Periodic statements not required. Periodic statements need not 
be sent in the following cases:
    i. If the creditor adjusts an account balance so that at the end of 
the cycle the balance is less than $1--so long as no finance charge has 
been imposed on the account for that cycle.
    ii. If a statement was returned as undeliverable. If a new address 
is provided, however, within a reasonable time before the creditor must 
send a statement, the creditor must resume sending statements. 
Receiving the address at least 20 days before the end of a cycle would 
be a reasonable amount of time to prepare the statement for that cycle. 
For example, if an address is received 22 days before the end of the 
June cycle, the creditor must send the periodic statement for the June 
cycle. (See Sec.  226.13(a)(7).)
    2. Termination of draw privileges. When a consumer's ability to 
draw on an open-end account is terminated without being converted to 
closed-end credit under a written agreement, the creditor must continue 
to provide

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periodic statements to those consumers entitled to receive them under 
Sec.  226.5(b)(2)(i), for example, when the draw period of an open-end 
credit plan ends and consumers are paying off outstanding balances 
according to the account agreement or under the terms of a workout 
agreement that is not converted to a closed-end transaction. In 
addition, creditors must continue to follow all of the other open-end 
credit requirements and procedures in subpart B.
    3. Uncollectible accounts. An account is deemed uncollectible for 
purposes of Sec.  226.5(b)(2)(i) when a creditor has ceased collection 
efforts, either directly or through a third party.
    4. Instituting collection proceedings. Creditors institute a 
delinquency collection proceeding by filing a court action or 
initiating an adjudicatory process with a third party. Assigning a debt 
to a debt collector or other third party would not constitute 
instituting a collection proceeding.
    Paragraph 5(b)(2)(ii).
    1. Reasonable procedures. A creditor is not required to determine 
the specific date on which periodic statements are mailed or delivered 
to each individual consumer. A creditor complies with Sec.  
226.5(b)(2)(ii) if it has adopted reasonable procedures designed to 
ensure that periodic statements are mailed or delivered to consumers no 
later than a certain number of days after the closing date of the 
billing cycle and adds that number of days to the 21-day period 
required by Sec.  226.5(b)(2)(ii) when determining the payment due date 
and the date on which any grace period expires. For example, if a 
creditor has adopted reasonable procedures designed to ensure that 
periodic statements are mailed or delivered to consumers no later than 
three days after the closing date of the billing cycle, the payment due 
date and the date on which any grace period expires must be no less 
than 24 days after the closing date of the billing cycle.
    2. Treating a payment as late for any purpose and collecting any 
finance or other charges. Treating a payment as late for any purpose 
includes increasing the annual percentage rate as a penalty, reporting 
the consumer as delinquent to a credit reporting agency, or assessing a 
late fee or any other fee based on the consumer's failure to make a 
payment within a specified amount of time or by a specified date. The 
prohibition in Sec.  226.5(b)(2)(ii) on treating a payment as late for 
any purpose or collecting finance or other charges applies only during 
the 21-day period following mailing or delivery of the periodic 
statement. When an account is not eligible for a grace period, imposing 
a finance charge due to a periodic interest rate does not constitute 
treating a payment as late or collecting finance or other charges as a 
result of a failure to comply with Sec.  226.5(b)(2)(ii).
    3. Payment due date. For purposes of Sec.  226.5(b)(2)(ii), 
``payment due date'' means the date by which the creditor requires the 
consumer to make the required minimum periodic payment in order to 
avoid being treated as late for any purpose, except as set forth in 
paragraphs i. and ii. below.
    i. Courtesy period following payment due date. Although the terms 
of the account agreement may require that payment be made by a certain 
date, some creditors provide an additional period of time after that 
date during which a late payment fee will not be assessed. In some 
cases, this period is set forth in the account agreement while in 
others it is provided as an informal policy or practice. Regardless, 
for purposes of Sec.  226.5(b)(2)(ii), the payment due date is the due 
date according to the legal obligation between the parties, not the end 
of the additional period of time. For example, if an account agreement 
for a home equity plan subject to the requirements of Sec.  226.5b 
provides that payment is due on the first day of the month but a late 
payment fee will not be assessed if the payment is received by the 
fifteenth day of the month, the payment due date for purposes of Sec.  
226.5(b)(2)(ii) is the first day of the month. Similarly, if a 
cardholder agreement provides that payment is due on the fifteenth day 
of the month but, under the creditor's informal ``courtesy'' period, a 
late payment fee will not be assessed if the payment is received by the 
eighteenth day of the month, the payment due date for purposes of Sec.  
226.5(b)(2)(ii) is the fifteenth day of the month.
    ii. Laws affecting assessment of late payment and other fees. Some 
State or other laws require that a certain number of days must elapse 
following a due date before a late payment or other fee may be imposed. 
For example, assume that the account agreement provides that payment is 
due on the fifteenth day of the month but, under State law, the 
creditor is prohibited from assessing a late payment fee until the 
twenty-sixth day of the month. For purposes of Sec.  226.5(b)(2)(ii), 
the payment due date is the due date according to the legal obligation 
between the parties (the fifteenth day of the month), not the date 
before which State law prohibits the imposition of a late payment fee 
(the twenty-sixth day of the month).
    4. Definition of grace period. For purposes of Sec.  
226.5(b)(2)(ii), ``grace period'' means a period within which any 
credit extended may be repaid without incurring a finance charge due to 
a periodic interest rate. A deferred interest or similar promotional 
program under which the consumer is not obligated to pay interest that 
accrues on a balance if that balance is paid in full prior to the 
expiration of a specified period of time is not a grace period for 
purposes of Sec.  226.5(b)(2)(ii). Similarly, a courtesy period 
following the payment due date is not a grace period for purposes of 
Sec.  226.5(b)(2)(ii). See comment 5(b)(2)(ii)-3.i.
    5. Consumer request to pick up periodic statements. When a consumer 
initiates a request, the creditor may permit, but may not require, the 
consumer to pick up periodic statements. If the consumer wishes to pick 
up a statement, the statement must be made available in accordance with 
Sec.  226.5(b)(2)(ii).
    6. Deferred interest and similar promotional programs. See comment 
7(b)-1.iv.
    Paragraph 5(b)(2)(iii).
    1. Computer malfunction. The exceptions identified in Sec.  
226.5(b)(2)(iii) of this section do not extend to the failure to 
provide a periodic statement because of computer malfunction.
    2. Calling for periodic statements. When the consumer initiates a 
request, the creditor may permit, but may not require, consumers to 
pick up their periodic statements. If the consumer wishes to pick up 
the statement and the plan has a grace period, the statement must be 
made available in accordance with the 14-day rule.
    5(c) Basis of disclosures and use