[Federal Register Volume 75, Number 34 (Monday, February 22, 2010)]
[Rules and Regulations]
[Pages 7657-7925]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-624]



[[Page 7657]]

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Part II





Federal Reserve System





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12 CFR Parts 226 and 227



Truth in Lending; Unfair or Deceptive Acts or Practices; Final Rules

Federal Register / Vol. 75 , No. 34 / Monday, February 22, 2010 / 
Rules and Regulations

[[Page 7658]]


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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: Final rule.

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SUMMARY: The Board is amending 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. The 
rule establishes 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 rule limits the application of increased rates to 
existing credit card balances, requires credit card issuers to consider 
a consumer's ability to make the required payments, establishes special 
requirements for extensions of credit to consumers who are under the 
age of 21, and limits the assessment of fees for exceeding the credit 
limit on a credit card account.

DATES: Effective date. The rule is effective February 22, 2010.
    Mandatory compliance dates. The mandatory compliance date for the 
portion of Sec.  226.5(a)(2)(iii) regarding use of the term ``fixed'' 
and for Sec. Sec.  226.5(b)(2)(ii), 226.7(b)(11), 226.7(b)(12), 
226.7(b)(13), 226.9(c)(2) (except for 226.9(c)(2)(iv)(D)), 226.9(e), 
226.9(g) (except for 226.9(g)(3)(ii)), 226.9(h), 226.10, 226.11(c), 
226.16(f), and Sec. Sec.  226.51-226.58 is February 22, 2010. The 
mandatory compliance date for all other provisions of this final rule 
is July 1, 2010.

FOR FURTHER INFORMATION CONTACT: Jennifer S. Benson or Stephen Shin, 
Attorneys, Amy Henderson, 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.

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 No. 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 periods in 
which these studies and reports must be completed.
    As is discussed further in the supplementary information to Sec.  
226.5(b)(2), on November 6, 2009, TILA Section 163 was further amended 
by the Credit CARD Technical Corrections Act of 2009 (Technical 
Corrections Act), which narrowed the application of the requirement 
regarding the time consumers receive to pay to credit card accounts. 
Public Law 111-93, 123 Stat. 2998 (Nov. 6, 2009). The Board is as 
adopting amendments to Sec.  226.5(b)(2) to conform to the requirements 
of TILA Section 163 as amended by the Technical Corrections Act.

Implementation of Credit Card Act

    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

[[Page 7659]]

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 has considered comments on the interim 
final rule in connection with this rule.
    On October 21, 2009 the Board published a proposed rule in the 
Federal Register to implement the provisions of the Credit Card Act 
that become effective February 22, 2010 (October 2009 Regulation Z 
Proposal). 74 FR 54124. The comment period on the October 2009 
Regulation Z Proposal closed on November 20, 2009. The Board received 
approximately 150 comments in response to the proposed rule, including 
comments from credit card issuers, trade associations, consumer groups, 
individual consumers, and a member of Congress. As discussed in more 
detail elsewhere in this supplementary information, the Board has 
considered comments received on the October 2009 Regulation Z Proposal 
in adopting this final rule.
    The Board is separately considering 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 intends 
to finalize implementing regulations 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. This final rule incorporates in substance 
those portions of the Board's January 2009 Regulation Z Rule that are 
unaffected by the Credit Card Act, except as specifically noted in V. 
Section-by-Section Analysis. Because the requirements of the Board's 
January 2009 Regulation Z and FTC Act Rules are incorporated in this 
rule, the Board is publishing elsewhere in this Federal Register two 
notices withdrawing the January 2009 Regulation Z Rule and its January 
2009 FTC Act Rule.

Provisions of January 2009 Regulation Z Rule Applicable to HELOCs

    The final rule incorporates 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 final rule includes new Sec. Sec.  226.6(a), 226.7(a) 
and 226.9(c)(1), which are identical to the analogous provisions 
adopted in the January 2009 Regulation Z Rule. 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). This final rule 
is not intended to amend or otherwise affect the August 2009 Regulation 
Z HELOC Proposal. However, the Board believes that these sections are 
necessary to give HELOC creditors clear guidance on how to comply with 
Regulation Z after the effective date of this rule but prior to the 
effective date of the forthcoming final rules directly addressing 
HELOCs.
    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.

Effective Date and Mandatory Compliance Dates

    As noted above, the effective date of the Board's January 2009 
Regulation Z Rule was July 1, 2010. However, the effective date of the 
provisions of the Credit Card Act implemented by this final rule is 
February 22, 2010. Many of the provisions of the Credit Card Act as 
implemented by this final rule are closely related to provisions of the 
January 2009 Regulation Z Rule. For example, 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.
    For consistency with the Credit Card Act, the Board is making the 
effective date for the final rule February 22, 2010. However, in the 
October 2009 Regulation Z Proposal, the Board solicited comment on 
whether compliance should be mandatory on February 22, 2010 for the 
provisions of the January 2009 Regulation Z Rule that are not directly 
affected by the Credit Card Act.
    Many industry commenters urged the Board to retain the original 
July 1, 2010 mandatory compliance date for amendments to Regulation Z 
that are not specifically required by the Credit Card Act. These 
commenters noted that there would be significant operational issues 
associated with accelerating the effective date for all of the 
revisions contained in the January 2009 Regulation Z Rule that are not 
specific requirements of the Credit Card Act. Commenters noted that 
they have already allocated resources and planned for a July 1, 2010 
mandatory compliance date for the January 2009 Regulation Z Rule and 
that it would be unworkable, if not impossible, to comply with all of 
the requirements of this final rule by February 22, 2010. The Board 
notes that this final rule is being issued less than two months prior 
to the February 22, 2010 effective date of the majority of the Credit 
Card Act requirements, and that an acceleration of the mandatory 
compliance date for provisions originally adopted in the January 2009 
Regulation Z Rule that are not directly impacted by the Credit Card Act 
would be extremely burdensome for creditors. For some creditors, it may 
be impossible to implement these provisions by February 22, 2010. 
Accordingly, the Board is generally retaining a July 1, 2010 mandatory 
compliance date for those provisions originally adopted in the January 
2009 Regulation Z Rule that are not requirements of the Credit Card 
Act.\1\
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    \1\ The Board notes that the provisions regarding advance notice 
of changes in terms and rate increases set forth in Sec.  
226.9(c)(2) and (g) apply to all open-end (not home-secured) plans. 
The Credit Card Act's requirements regarding advance notice of 
changes in terms and rate increases, as implemented in this final 
rule, apply only to credit card accounts under an open-end (not 
home-secured) consumer credit plan. In order to have one consistent 
rule for all open-end (not home-secured) plans, compliance with the 
requirements of Sec.  226.9(c)(2) and (g) (except for specific 
formatting requirements) is mandatory for all open-end (not home-
secured) plans on February 22, 2010.
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    Accordingly, as discussed further in VI. Mandatory Compliance 
Dates, the mandatory compliance date for the portion of Sec.  
226.5(a)(2)(iii) regarding use of the term ``fixed'' and for Sec. Sec.  
226.5(b)(2)(ii), 226.7(b)(11), 226.7(b)(12), 226.7(b)(13), 226.9(c)(2) 
(except for 226.9(c)(2)(iv)(D)), 226.9(e), 226.9(g) (except for 
226.9(g)(3)(ii)), 226.9(h), 226.10, 226.11(c), 226.16(f),

[[Page 7660]]

and Sec. Sec.  226.51-226.58 is February 22, 2010. The mandatory 
compliance date for all other provisions of this final rule is July 1, 
2010.

II. Summary of Major Revisions

A. Increases in Annual Percentage Rates

    Existing balances. Consistent with the Credit Card Act, the final 
rule prohibits credit card issuers 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 final rule permits the card issuer to increase 
that rate once the SCRA ceases to apply.
    New transactions. The final rule implements 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 final rule 
provides that a card issuer is permitted to increase the annual 
percentage rates that apply to new transactions so long as the issuer 
provides the consumer with 45 days advance notice of the increase.

B. Evaluation of Consumer's Ability To Pay

    General requirements. The Credit Card Act prohibits credit card 
issuers from opening a new credit card account or increasing the credit 
limit for an existing credit card account unless the issuer considers 
the consumer's ability to make the required payments 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 final 
rule requires card issuers to consider the consumer's ability to make 
the required minimum payments.
    However, because an issuer 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 Board proposed to require issuers 
to use a reasonable method for estimating a consumer's minimum payments 
and proposed a safe harbor that issuers could use to satisfy this 
requirement. For example, with respect to the opening of a new credit 
card account, the proposed safe harbor provided that it would be 
reasonable for an issuer to estimate minimum payments based on a 
consumer's utilization of the full credit line using the minimum 
payment formula employed by the issuer with respect to the credit card 
product for which the consumer is being considered.
    Based on comments received and further analysis, the final rule 
adopts these aspects of the proposal. In addition, the final rule 
provides that--if the applicable minimum payment formula includes fees 
and accrued interest--the estimated minimum payment must include 
mandatory fees and must include interest charges calculated using the 
annual percentage rate that will apply after any promotional or other 
temporary rate expires.
    The proposed rule would also have specified the types of factors 
card issuers should review in considering a consumer's ability to make 
the required minimum payments. Specifically, it provided that an 
evaluation of a consumer's ability to pay must include a review of the 
consumer's income or assets as well as 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, an issuer would have been permitted to 
rely on information provided by the consumer or information in a 
consumer's credit report.
    Based on comments received and further analysis, the final rule 
adopts these aspects of the proposal. In addition, when evaluating a 
consumer's ability to pay, the final rule requires issuers to consider 
the ratio of debt obligations to income, the ratio of debt obligations 
to assets, or the income the consumer will have after paying debt 
obligations (i.e., residual income). Furthermore, the final rule 
provides that it would be unreasonable for an issuer not to review any 
information about a consumer's income, assets, or current obligations, 
or to issue a credit card to a consumer who does not have any income or 
assets. Finally, in order to provide flexibility regarding 
consideration of income or assets, the final rule permits issuers to 
make a reasonable estimate of the consumer's income or assets based on 
empirically derived, demonstrably and statistically sound models.
    Specific requirements for underage consumers. Consistent with the 
Credit Card Act, the final 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) 
Information indicating that the underage consumer has the ability to 
make the required payments for the account; or (2) 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.

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 final rule contains official staff commentary to assist 
creditors in complying with these prohibitions. For example, the 
commentary clarifies 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 commentary also clarifies 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 commentary states 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 final rule also 
implements 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 final rule states 
that an institution may comply with this requirement by,

[[Page 7661]]

for example, posting the agreement on its Web site or by making the 
agreement available upon request.
    In addition, the final rule implements the provisions of the Credit 
Card Act requiring card issuers to make annual reports to the Board 
regarding any business, marketing, or promotional agreements between 
the issuer and an institution of higher education (or an affiliated 
organization) regarding the issuance of credit cards to students at 
that institution. The first report must provide information regarding 
the 2009 calendar year and must be submitted to the Board by February 
22, 2010.\2\
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    \2\ Technical specifications for these submissions are set forth 
in Attachment I to this Federal Register notice.
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D. Fees or Charges for Transactions That Exceed the Credit Limit

    Consumer consent requirement. Consistent with the Credit Card Act, 
the final rule requires credit card issuers to 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 issuer 
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 issuer 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 final rule applies these requirements to all consumers 
(including existing accountholders) if the issuer imposes a fee or 
charge for paying an over-the-limit transaction. Thus, after February 
22, 2010, issuers are 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 issuer'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 final rule would prohibit an issuer from 
imposing more than one over-the-limit fee or charge per billing cycle. 
In addition, an issuer 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 have prohibited issuers from assessing over-the-limit fees 
or charges that are caused by the issuer's failure to promptly 
replenish the consumer's available credit. The proposed rule would have 
also prohibited issuers 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 have prohibited the 
imposition of any over-the-limit fees or charges if the credit limit is 
exceeded solely because of the issuer's assessment of fees or charges 
(including accrued interest charges) on the consumer's account. The 
final rule adopts these prohibitions.

E. 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. In addition, 
the Credit Card Act provided that, when a balance on an account is 
subject to a deferred interest or similar program, excess payments must 
be allocated first to that balance during the last two billing cycles 
of the deferred interest period so that the consumer can pay the 
balance in full and avoid deferred interest charges.
    The final rule mirrors the statutory requirements. However, in 
order to provide consumers who utilize deferred interest programs with 
an additional means of avoiding deferred interest charges, the final 
rule also permits issuers to allocate excess payments in the manner 
requested by the consumer at any point during a deferred interest 
period. This exception allows issuers to retain existing programs that 
permit consumers to, for example, pay off a deferred interest balance 
in installments over the course of the deferred interest period. 
However, this provision applies only when a balance on an account is 
subject to a deferred interest or similar program.

F. Timely Settlement of Estates

    The Credit Card Act directs the Board to prescribe regulations 
requiring credit card issuers 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 have imposed two 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 issuer would have 
been required to disclose the amount of the balance in a timely manner. 
The final rule adopts this requirement. Second, once an administrator 
has requested the account balance, the proposed rule would have 
prohibited the issuer from imposing additional fees and charges on the 
account so that the amount of the balance does not increase while the 
administrator is arranging for payment. However, because the Board was 
concerned that a permanent moratorium on fees and interest charges 
could be unduly burdensome, the proposal solicited comment on whether a 
particular period of time would generally be sufficient to enable an 
administrator to arrange for payment.
    Based on comments received and further analysis, the Board believes 
that it would not be appropriate to permanently prohibit the accrual of 
interest on a credit card account once an administrator requests the 
account balance because interest will continue to accrue on other types 
of credit accounts that are part of the estate. Instead, the final rule 
provides that--if the administrator pays the balance stated by the 
issuer in full within 30 days--the issuer must waive any additional 
interest charges. However, the final rule retains the proposed 
prohibition on the imposition of additional fees so that the account is 
not, for example, assessed late payment fees or annual fees while the 
administrator is settling the estate.

G. On-Line Disclosure of Credit Card Agreements

    The Credit Card Act requires issuers 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.

[[Page 7662]]

    The final rule adopts the proposed requirement that issuers post on 
their Web sites or otherwise make available their credit card 
agreements with current cardholders. In addition, consistent with the 
Credit Card Act, the final rule generally requires that--no later than 
February 22, 2010--issuers submit to the Board for posting on its Web 
site all credit card agreements offered to the public as of December 
31, 2009. Subsequent submissions are due on August 2, 2010 and on a 
quarterly basis thereafter.\3\
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    \3\ Technical specifications for these submissions are set forth 
in Attachment I to this Federal Register notice.
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    However, the final rule also adopts certain exceptions to this 
submission requirement. First, the final rule adopts the proposed de 
minimis exception for issuers with fewer than 10,000 open credit card 
accounts. Because the overwhelming majority of credit card accounts are 
held by issuers 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. Similarly, based on 
comments received and further analysis, the final rule provides that 
issuers are not required to submit agreements for private label plans 
offered on behalf of a single merchant or a group of affiliated 
merchants or for plans that are offered in order to test a new credit 
card product so long as the plan involves no more than 10,000 credit 
card accounts.
    Second, the final rule adopts the proposed exception for 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 final 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.
    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 issuer from imposing finance 
charges on the portion of the balance that has been repaid.
    Fees for making payment. The Credit Card Act prohibits issuers from 
charging a fee for making a payment, except for payments involving an 
expedited service by a service representative of the issuer.
    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

General Rulemaking 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 final 
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.

Authority To Issue Final Rule With an Effective Date of February 22, 
2010

    Because the provisions of the Credit Card Act implemented by this 
final rule are effective on February 22, 2010,\4\ this final rule is 
also effective on February 22, 2010 (except as otherwise provided). The 
Administrative Procedure Act (5 U.S.C. 551 et seq.) (APA) generally 
requires that rules be published not less than 30 days before their 
effective date. See 15 U.S.C. 553(d). However, the APA provides an 
exception when ``otherwise provided by the agency for good cause found 
and published with the rule.'' Id. Sec.  553(d)(3). Although the Board 
is issuing this final rule more than 30 days before February 22, 2010, 
it is unclear whether it will be published in the Federal Register more 
than 30 days before that date.\5\ Accordingly, the Board finds that 
good cause exists to publish the final rule less than 30 days before 
the effective date.
---------------------------------------------------------------------------

    \4\ See Credit Card Act Sec.  3.
    \5\ The date on which the Board's notice is published in the 
Federal Register depends on a number of variables that are outside 
the Board's control, including the number and size of other notices 
submitted to the Federal Register prior to the Board's notice.

---------------------------------------------------------------------------

[[Page 7663]]

    Similarly, although 12 U.S.C. 4802(b)(1) generally requires that 
new regulations and amendments to existing regulations take effect on 
the first day of the calendar quarter which begins on or after the date 
on which the regulations are published in final form (in this case, 
April 1, 2010), the Board has determined that--in light of the 
statutory effective date--there is good cause for making this final 
rule effective on February 22, 2010. See 12 U.S.C. 4802(b)(1)(A) 
(providing an exception to the general requirement when ``the agency 
determines, for good cause published with the regulation, that the 
regulations should become effective before such time''). Furthermore, 
the Board believes that providing creditors with guidance regarding 
compliance before April 1, 2010 is consistent with 12 U.S.C. 
4802(b)(1)(C), which provides an exception to the general requirement 
when ``the regulation is required to take effect on a date other than 
the date determined under [12 U.S.C. 4802(b)(1)] pursuant to any other 
Act of Congress.''
    Finally, TILA Section 105(d) provides that any regulation of the 
Board (or any amendment or interpretation thereof) requiring any 
disclosure which differs from the disclosures previously required by 
Chapters 1, 4, or 5 of TILA (or by any regulation of the Board 
promulgated thereunder) shall have an effective date no earlier than 
``that October 1 which follows by at least six months the date of 
promulgation.'' However, even assuming that TILA Section 105(d) applies 
to this final rule, the Board believes that the specific provision in 
Section 3 of the Credit Card Act governing effective dates overrides 
the general provision in TILA Section 105(d).

IV. Applicability of 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 implemented in 
Regulation Z are applicable to which types of open-end credit products. 
In order to clarify the scope of the revisions to Regulation Z, the 
Board is providing the below table, which summarizes the applicability 
of each of the major revisions to Regulation Z.\6\
---------------------------------------------------------------------------

    \6\ 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 has not changed 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)(A).........  Credit card accounts under an open-
                                     end (not home-secured) consumer
                                     credit plan.
Sec.   226.5(b)(2)(ii)(B).........  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 October 2009 Regulation Z Proposal would 
have further revised 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 have 
defined 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 Board proposed to move the definitions of ``credit 
card'' and ``charge card'' in the January 2009 Regulation Z Rule to 
Sec.  226.2(a)(15)(i) and (iii), respectively.
    The Board noted that the exclusion of credit cards that access a 
home-equity plan subject to Sec.  226.5b was consistent

[[Page 7664]]

with the approach adopted by the Board in the July 2009 Regulation Z 
Interim Final Rule. See 74 FR 36083. Specifically, in the interim final 
rule, 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 proposed to 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.\7\ The Board 
noted that this interpretation was 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. Commenters generally supported this exclusion, which is 
adopted in the final rule.
---------------------------------------------------------------------------

    \7\ 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 Sec.  226.9(c)(2), the implementation of new TILA 
Section 127(m) in Sec. Sec.  226.5(a)(2)(iii) and 226.16(f), and the 
implementation of new TILA Section 127(o)(2) in Sec.  226.10(d).
---------------------------------------------------------------------------

    The Board also proposed 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 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.\8\
---------------------------------------------------------------------------

    \8\ 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.\9\ 
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 proposed 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.
---------------------------------------------------------------------------

    \9\ 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) (``Changes in 
U.S. Family Finances from 2004 to 2007'').
---------------------------------------------------------------------------

    Commenters generally supported this exclusion, which is adopted in 
the final rule. Several industry commenters also requested that the 
Board exclude lines of credit accessed by a debit card that can be used 
only at automated teller machines and lines of credit accessed solely 
by account numbers. These commenters argued that--like overdraft lines 
of credit accessed by a debit card--these products are not 
``traditional'' credit cards and that creditors may be less willing to 
provide these products if they are required to comply with the 
provisions of the Credit Card Act. They also noted that the Board has 
excluded these products from the disclosure requirements for credit and 
charge cards in Sec.  226.5a and the definition of ``consumer credit 
card account'' in the January 2009 FTC Act Rule. See Sec.  
226.5a(a)(5); 12 CFR 227.21(c), 74 FR 5560.
    The Board believes that, as a general matter, Congress intended the 
Credit Card Act to apply broadly to products that meet the definition 
of a credit card. As discussed above, the Board's exclusion of HELOCs 
and overdraft lines of credit accessed by cards is based on the Board's 
determination that alternative forms of regulation exist that are 
better suited to protecting consumers from harm with respect to those 
products. No such alternative exists for lines of credit accessed 
solely by account numbers. Similarly, although the protections in 
Regulation E generally apply when a debit card is used at an automated 
teller machine to credit a deposit account with funds obtained from a 
line of credit,\10\

[[Page 7665]]

Regulation E generally does not apply when a debit card is used at an 
automated teller machine to obtain cash from the line of credit. 
Furthermore, because it appears that both type of credit lines are more 
likely to be used for long-term extensions of credit than overdraft 
lines, consumers are more likely to experience substantial harm if--for 
example--an increased annual percentage rate is applied to an 
outstanding balance.\11\ Thus, the Board does not believe that an 
exclusion is warranted for lines of credit accessed by a debit card 
that can be used only at automated teller machines or lines of credit 
accessed solely by account numbers.
---------------------------------------------------------------------------

    \10\ 12 CFR 205.3(a) (stating that Regulation E ``applies to any 
electronic fund transfer that authorizes a financial institution to 
debit or credit a consumer's account'').
    \11\ Commenters that supported an exclusion for lines of credit 
accessed by a debit card that can be used only at automated teller 
machines noted that--unlike most credit cards--the debit card cannot 
access the line of credit for purchases at point of sale. However, 
it appears that consumers can use the debit card to obtain 
extensions of credit either in the form of cash or a transfer of 
funds to a deposit account.
---------------------------------------------------------------------------

    Finally, the Board notes that the revisions to 226.2(a)(15) are 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.''

Section 226.5 General Disclosure Requirements

5(a) Form of Disclosures
5(a)(2) Terminology
    New TILA Section 127(m) (15) U.S.C. 1637(m)), as added by Section 
103 of the Credit Card Act, 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. 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. As discussed 
in the October 2009 Regulation Z Proposal, 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). Sections 226.5(a)(2)(iii) and 226.16(f) were therefore 
republished in the October 2009 Regulation Z Proposal to implement TILA 
Section 127(m). The Board did not receive any comments on Sec. Sec.  
226.5(a)(2)(iii) and 226.16(f), and they are adopted as proposed.
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 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, 
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 Sec.  226.55(d); 
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 has adopted 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 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 comment is not intended 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 further states 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.\12\
---------------------------------------------------------------------------

    \12\ 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.
---------------------------------------------------------------------------

    In the October 2009 Regulation Z Proposal, the Board solicited 
comment on whether additional facts and circumstances were relevant. 
The Board also solicited 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).
    On the one hand, consumer groups commenters stated that the Board's 
proposed approach was not sufficiently restrictive. They argued that 
Sec.  226.9(c)(2) should apply whenever a

[[Page 7666]]

credit card account is substituted or replaced with another credit card 
account so that consumers will always receive 45 days' notice before 
any significant new terms take effect. However, the Board is concerned 
that this strict approach may not be beneficial to consumers overall. 
As discussed above, when an existing cardholder has requested new 
features or benefits, the cardholder generally will not want to wait 45 
days to receive those features or benefits. Although a card issuer 
could provide the new features or benefits immediately, it may not be 
willing to do so if it cannot simultaneously compensate for the 
additional features or benefits by, for example, charging a higher 
annual percentage rate on new transactions or adding an annual fee.
    On the other hand, industry commenters stated that the Board's 
proposed approach was overly restrictive. They argued that Sec.  
226.6(b) should apply whenever the substitution or replacement was 
requested by the consumer so that the new terms can be applied 
immediately. However, the Board has generally declined to provide a 
consumer request exception to the 45-day notice requirement in Sec.  
226.9(c)(2) because of the difficulty of defining by regulation the 
circumstances under which a consumer is deemed to have requested a 
change versus the circumstances in which the change is ``suggested'' by 
the card issuer. See revised Sec.  226.9(c)(2)(i). Thus, the Board does 
not believe that the determination of whether Sec. Sec.  226.6(b) or 
226.9(c)(2) applies should turn solely on whether a consumer has 
requested the replacement or substitution.
    For the foregoing reasons, the Board believes that the proposed 
standard provides the appropriate degree of flexibility insofar as it 
states that whether Sec. Sec.  226.6(b) or 226.9(c)(c)(2) applies is 
determined in light of the relevant facts and circumstances. However, 
in response to requests from commenters, the Board has clarified some 
of the listed facts and circumstances. Specifically, the Board has 
added the substitution or replacement of a retail card with a cobranded 
general purpose credit card as an example of a circumstance in which an 
account can be used to conduct transactions at a greater or lesser 
number of merchants after the substitution or replacement. Similarly, 
the Board has added a substitution or replacement in response to a 
consumer's request as an example of a substitution or replacement on an 
individualized basis. Finally, the Board has clarified that, 
notwithstanding the listed facts and circumstances, a card issuer that 
replaces a credit card or provides a new account number because the 
consumer has reported the card stolen or because the account appears to 
have been used for unauthorized transactions is not required to provide 
a notice under Sec.  226.6(b) or 226.9(c)(2) unless the card issuer has 
changed a term of the account that is subject to Sec. Sec.  226.6(b) or 
226.9(c)(2).
5(b)(2) Periodic Statements
    As amended by the Credit Card Act in May 2009, TILA Section 163 
generally prohibited a creditor from treating a payment as late or 
imposing additional finance charges unless the creditor mailed or 
delivered the periodic statement at least 21 days before the payment 
due date and the expiration of any period within which any credit 
extended may be repaid without incurring a finance charge (i.e., a 
``grace period''). See Credit Card Act Sec.  106(b)(1). Unlike most of 
the Credit Card Act's provisions, the amendments to Section 163 applied 
to all open-end consumer credit plans rather than just credit card 
accounts.\13\ The Board's July 2009 Regulation Z Interim Final Rule 
implemented the amendments to TILA Section 163 by revising Sec.  
226.5(b)(2)(ii) and the accompanying official staff commentary. Both 
the statutory amendments and the interim final rule became effective on 
August 22, 2009. See Credit Card Act Sec.  106(b)(2).
---------------------------------------------------------------------------

    \13\ Specifically, while most provisions in the Credit Card Act 
apply to ``credit card account[s] under an open end consumer credit 
plan'' (e.g., Sec.  101(a)), the May 2009 amendments to TILA Section 
163 applied to all ``open end consumer credit plan[s].''
---------------------------------------------------------------------------

    However, in November 2009, the Credit CARD Technical Corrections 
Act of 2009 (Technical Corrections Act) further amended TILA Section 
163, narrowing application the requirement that statements be mailed or 
delivered at least 21 days before the payment due date to credit card 
accounts. Public Law 111-93, 123 Stat. 2998 (Nov. 6, 2009).\14\ 
Accordingly, the Board adopts Sec.  226.5(b)(2)(ii) and its commentary 
in this final rule with revisions implementing the Technical 
Corrections Act and clarifying aspects of the July 2009 interim final 
rule in response to comments.
---------------------------------------------------------------------------

    \14\ As discussed below, the Technical Corrections Act did not 
alter the requirement in amended TILA Section 163 that all open-end 
consumer credit plans generally mail or deliver periodic statements 
at least 21 days before the date on which any grace period expires.
---------------------------------------------------------------------------

5(b)(2)(ii) Mailing or Delivery
    Prior to the Credit Card Act, TILA Section 163 required creditors 
to send periodic statements at least 14 days before the expiration of 
the grace period (if any), unless prevented from doing so by an act of 
God, war, natural disaster, strike, or other excusable or justifiable 
cause (as determined under regulations of the Board). 15 U.S.C. 1666b. 
The Board's Regulation Z, however, applied the 14-day requirement even 
when the consumer did not receive a grace period. Specifically, Sec.  
226.5(b)(2)(ii) required that creditors mail or deliver periodic 
statements 14 days before the date by which payment was due for 
purposes of avoiding not only finance charges as a result of the loss 
of a grace period but also any charges other than finance charges (such 
as late fees). See also comment 5(b)(2)(ii)-1.
    In the January 2009 FTC Act Rule, the Board and the other Agencies 
prohibited institutions from treating payments on consumer credit card 
accounts as late for any purpose unless the institution provided a 
reasonable amount of time for consumers to make payment. See 12 CFR 
227.22(a), 74 FR 5560; see also 74 FR 5508-5512.\15\ This rule included 
a safe harbor for institutions that adopted reasonable procedures 
designed to ensure that periodic statements specifying the payment due 
date were mailed or delivered to consumers at least 21 days before the 
payment due date. See 12 CFR 227.22(b)(2), 74 FR 5560. The 21-day safe 
harbor was intended to allow seven days for the periodic statement to 
reach the consumer by mail, seven days for the consumer to review their 
statement and make payment, and seven days for that payment to reach 
the institution by mail. However, to avoid any potential conflict with 
the 14-day requirement in TILA Section 163(a), the rule expressly 
stated that it would not apply to any grace period provided by an 
institution. See 12 CFR 227.22(c), 74 FR 5560.
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    \15\ 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.
---------------------------------------------------------------------------

    The Credit Card Act's amendments to TILA Section 163 codified 
aspects of the Board's Sec.  226.5(b)(2)(ii) as well as the provision 
in the January 2009 FTC Act Rule regarding the mailing or delivery of 
periodic statements. Specifically, like the Board's Sec.  
226.5(b)(2)(ii), amended TILA Section 163 applies the mailing or 
delivery requirement to both the expiration of the grace period and the 
payment due date. In addition, similar to the January 2009 FTC Act 
Rule,

[[Page 7667]]

amended TILA Section 163 adopts 21 days as the appropriate time period 
between the date on which the statement is mailed or delivered to the 
consumer and the date on which the consumer's payment must be received 
by the creditor to avoid adverse consequences.
    Rather than establishing an absolute requirement that periodic 
statements be mailed or delivered 21 days in advance of the payment due 
date, amended TILA Section 163(a) codifies the same standard adopted by 
the Board and the other Agencies in the January 2009 FTC Act Rule, 
which requires creditors to adopt ``reasonable procedures designed to 
ensure'' that statements are mailed or delivered at least 21 days 
before the payment due date. Notably, however, the 21-day requirement 
for grace periods in amended TILA Section 163(b) does not include 
similar language regarding ``reasonable procedures.'' Because the 
payment due date generally coincides with the expiration of the grace 
period, the Board believes that it will facilitate compliance to apply 
a single standard to both circumstances. The ``reasonable procedures'' 
standard recognizes that, for issuers mailing hundreds of thousands of 
periodic statements each month, it would be difficult if not impossible 
to know whether a specific statement is mailed or delivered on a 
specific date. Furthermore, applying different standards could 
encourage creditors to establish a payment due date that is different 
from the date on which the grace period expires, which could lead to 
consumer confusion.
    Accordingly, the Board's interim final rule amended Sec.  
226.5(b)(2)(ii) to require that creditors adopt reasonable procedures 
designed to ensure that periodic statements are mailed or delivered at 
least 21 days before the payment due date and the expiration of the 
grace period. In doing so, the Board relied on its authority under TILA 
Section 105(a) to make adjustments that are necessary or proper to 
effectuate the purposes of TILA and to facilitate compliance therewith. 
See 15 U.S.C. 1604(a).
    For clarity, the interim final rule also amended Sec.  
226.5(b)(2)(ii) 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.'' This definition is consistent with 
the definition of grace period adopted by the Board in its January 2009 
Regulation Z Rule. See Sec. Sec.  226.5a(b)(5), 226.6(b)(2)(v), 74 FR 
5404, 5407; see also 74 FR 5291-5294, 5310.
    Finally, the Credit Card Act removed prior TILA Section 163(b), 
which stated that the 14-day mailing requirement does not apply ``in 
any case where a creditor has been prevented, delayed, or hindered in 
making timely mailing or delivery of [the] periodic statement within 
the time period specified * * * because of an act of God, war, natural 
disaster, strike, or other excusable or justifiable cause, as 
determined under regulations of the Board.'' 15 U.S.C. 1666b(b). The 
Board believes that the Credit Card Act's removal of this language is 
consistent with the adoption of a ``reasonable procedures'' standard 
insofar as a creditor's procedures for responding to any of the 
situations listed in prior TILA Section 163(b) will now be evaluated 
for reasonableness. Accordingly, the interim final rule removed the 
language implementing prior TILA Section 163(b) from footnote 10 to 
Sec.  226.5(b)(2)(ii).\16\
---------------------------------------------------------------------------

    \16\ The Board notes that the October 2009 Regulation Z Proposal 
erroneously included this language in Sec.  226.5(b)(2)(iii). The 
final rule corrects this error.
---------------------------------------------------------------------------

    Commenters generally supported the interim final rule, with one 
notable exception. Credit unions and community bank commenters strongly 
opposed the interim final rule on the grounds that requiring creditors 
to mail or deliver periodic statements at least 21 days before the 
payment due date with respect to open-end consumer credit plans other 
than credit card accounts was unnecessary and unduly burdensome. In 
particular, these commenters noted that the requirement 
disproportionately impacted credit unions, which frequently provide 
open-end products with multiple due dates during a month (such as bi-
weekly due dates that correspond to the dates on which the consumer is 
paid) as well as consolidated periodic statements for multiple open-end 
products with different due dates. These commenters argued that 
applying the 21-day requirement to these products would significantly 
increase costs by requiring multiple periodic statements or cause 
creditors to cease offering such products altogether. However, these 
commenters noted that the requirement that statements be provided at 
least 21 days before the expiration of a grace period was not 
problematic because these products do not provide a grace period.
    The Technical Corrections Act addressed these concerns by narrowing 
the application of the 21-day requirement in TILA Section 163(a) to 
credit cards. However, open-end consumer credit plans that provide a 
grace period remain subject to the 21-day requirement in Section 
163(b). The final rule revises Sec.  226.5(b)(2)(ii) consistent with 
the Technical Corrections Act. Specifically, because the Technical 
Corrections Act amended TILA Section 163 to apply different 
requirements to different types of open-end credit accounts, the Board 
has reorganized Sec.  226.5(b)(2)(ii) into Sec.  226.5(b)(2)(ii)(A) and 
Sec.  226.5(b)(2)(ii)(B). This reorganization does not reflect any 
substantive revision of the interim final rule beyond those changes 
necessary to implement the Technical Corrections Act.
5(b)(2)(ii)(A) Payment Due Date
    Section 226.5(b)(2)(ii)(A)(1) provides that, for consumer credit 
card accounts under an open-end (not home-secured) consumer credit 
plan, a card issuer must adopt reasonable procedures designed to ensure 
that periodic statements are mailed or delivered at least 21 days prior 
to the payment due date. Furthermore, Sec.  226.5(b)(2)(ii)(A)(2) 
provides that the card issuer must also adopt reasonable procedures 
designed to ensure that a required minimum periodic payment received by 
the card issuer within 21 days after mailing or delivery of the 
periodic statement disclosing the due date for that payment is not 
treated as late for any purpose.
    For clarity and consistency, Sec.  226.5(b)(2)(ii)(A)(1) provides 
that a periodic statement generally must be mailed or delivered at 
least 21 days before the payment due date disclosed pursuant to Sec.  
226.7(b)(11)(i)(A). As discussed in greater detail below, Sec.  
226.7(b)(11)(i)(A) implements the Credit Card Act's requirement that 
periodic statements for credit card accounts disclose a payment due 
date. See amended TILA Section 127(b)(12)(A).\17\ The Board believes 
that--like the mailing or delivery requirements for periodic statements 
in the January 2009 FTC Act Rule--the Credit Card Act's amendments to 
TILA Section 163 are intended to ensure that consumers have a 
reasonable amount of time to make payment after receiving their 
periodic statements. For that reason, the Board believes that it is 
important to ensure that the payment due date disclosed pursuant to 
Sec.  226.7(b)(11)(i)(A) is consistent with requirements of Sec.  
226.5(b)(2)(ii)(A). If creditors were permitted to disclose a payment 
due date on the periodic statement that was less than 21 days

[[Page 7668]]

after mailing or delivery of the periodic statement, consumers could be 
misled into believing that they have less time to pay than provided 
under TILA Section 163 and Sec.  226.5(b)(2)(ii)(A).
---------------------------------------------------------------------------

    \17\ Although the 21-day requirement in amended TILA Section 
163(a) is specifically tied to provision of a periodic statement 
that ``includ[es] the information required by [TILA] section 
127(b)],'' the July 2009 interim final rule did not cross-reference 
the due date disclosure because that disclosure was not scheduled to 
go into effect until February 22, 2010.
---------------------------------------------------------------------------

    The interim final rule adopted a new comment 5(b)(2)(ii)-1, which 
clarifies that, under the ``reasonable procedures'' standard, a 
creditor is not required to determine the specific date on which 
periodic statements are mailed or delivered to each individual 
consumer. Instead, 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. The final rule retains this comment 
with revisions to reflect the reorganization of Sec.  
226.5(b)(2)(ii).\18\
---------------------------------------------------------------------------

    \18\ The Board and the other Agencies adopted a similar comment 
in the January 2009 FTC Act Rule. See 12 CFR 227.22 comment 22(b)-1, 
74 FR 5511, 5561. The interim final rule deleted prior comment 
5(b)(2)(ii)-1 because it referred to the 14-day rule for grace 
periods and was therefore no longer consistent with Sec.  
226.5(b)(2)(ii). In doing so, the Board concluded that, to the 
extent that the comment clarified that Sec.  226.5(b)(2)(ii) applied 
in circumstances where the consumer is not eligible or ceases to be 
eligible for a grace period, it was no longer necessary because that 
requirement was reflected in amended Sec.  226.5(b)(2)(ii) and 
elsewhere in the amended commentary.
---------------------------------------------------------------------------

    The interim final rule also adopted a new comment 5(b)(2)(ii)-2, 
which clarifies that 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.\19\ 
Several commenters requested that the Board narrow or expand this 
language to clarify that certain activities are included or excluded. 
The current language is consistent with the Board's intent that the 
prohibition on treating a payment as late for purpose be broadly 
construed and that the list of examples be illustrative rather than 
exhaustive. Nevertheless, in order to provide additional clarity, the 
final rule amends comment 5(b)(2)(ii)-2 to provide two additional 
examples of activities that constitute treating a payment as late for 
purposes of Sec.  226.5(b)(2)(ii)(A)(2): terminating benefits (such as 
rewards on purchases) and initiating collection activities. However, 
the provision of additional examples should not be construed as a 
determination by the Board that other activities would not constitute 
treating a payment as late for any purpose.
---------------------------------------------------------------------------

    \19\ The Board and the other Agencies adopted a similar comment 
in the January 2009 FTC Act Rule. See 12 CFR 227.22 comment 22(a)-1, 
74 FR 5510, 5561. The interim final rule deleted prior comment 
5(b)(2)(ii)-2, which clarified that the emergency circumstances 
exception in prior footnote 10 does not extend to the failure to 
provide a periodic statement because of computer malfunction. As 
discussed above, prior footnote 10 was based on prior TILA Section 
163(b), which has been repealed.
---------------------------------------------------------------------------

    In the October 2009 Regulation Z Proposal, the Board proposed to 
amend other aspects of comment 5(b)(2)(ii)-2. In particular, the Board 
proposed 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 stating the due date for that 
payment. 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. 
Commenters generally supported this clarification. Accordingly, the 
Board has adopted this guidance--with additional clarifications--in the 
final rule. In addition, for consistency with the reorganization of 
Sec.  226.5(b)(2)(ii), the Board has moved the guidance regarding grace 
periods to comment 5(b)(2)(ii)-3.
5(b)(2)(ii)(B) Grace Period Expiration Date
    Section 226.5(b)(2)(ii)(B)(1) provides that, for open-end consumer 
credit plans, a creditor must adopt reasonable procedures designed to 
ensure that periodic statements are mailed or delivered at least 21 
days prior to the date on which any grace period expires. Furthermore, 
Sec.  226.5(b)(2)(ii)(B)(2) provides that the creditor must also adopt 
reasonable procedures designed to ensure that the creditor does not 
impose finance charges as a result of the loss of a grace period if a 
payment that satisfies the terms of the grace period is received by the 
creditor within 21 days after mailing or delivery of the periodic 
statement. Finally, the interim final rule's definition of ``grace 
period'' has been moved to Sec.  226.5(b)(2)(ii)(B)(3) without any 
substantive change.
    The interim final rule adopted comment 5(b)(2)(ii)-3, which 
clarified that, for purposes of Sec.  226.5(b)(2)(ii), ``payment due 
date'' generally excluded courtesy periods following the contractual 
due date during which a consumer could make payment without incurring a 
late payment fee. This comment was intended to address open-end 
consumer credit plans other than credit cards and therefore is not 
necessary in light of the Technical Corrections Act.\20\ Accordingly, 
the guidance in current comment 5(b)(2)(ii)-3 has been replaced with 
guidance regarding application of the grace period requirements in 
Sec.  226.5(b)(2)(ii)(B). Specifically, this comment incorporates 
current comment 5(b)(2)(ii)-4, which clarifies that the definition of 
``grace period'' in Sec.  226.5(b)(2)(ii) does not include 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. The 
comment also clarifies that courtesy periods following the payment due 
date during which a late payment fee will not be assessed are not grace 
periods for purposes of Sec.  226.5(b)(2)(ii)(B) and provides a cross-
reference to comments 7(b)(11)-1 and -2 for additional guidance 
regarding such periods.
---------------------------------------------------------------------------

    \20\ Furthermore, similar guidance is provided in comments 
7(b)(11)-1 and -2, which the Board is adopting in this final rule 
(as discussed below). The Board initially adopted comments 7(b)(11)-
1 and -2 in the January 2009 Regulation Z Rule. See 74 FR 5478. 
However, because this commentary was not yet effective, the July 
2009 Regulation Z Interim Final Rule provided similar guidance in 
current comment 5(b)(2)(ii)-3.
---------------------------------------------------------------------------

    Comment 5(b)(2)(ii)-3 also clarifies the applicability of Sec.  
226.5(b)(2)(ii)(B). Specifically, it states that Sec.  
226.5(b)(2)(ii)(B) applies if an account is eligible for a grace period 
when the periodic statement is mailed or delivered. It further states 
that Sec.  226.5(b)(2)(ii)(B) does not require the creditor to provide 
a grace period or prohibit the creditor from placing limitations and 
conditions on a grace period to the extent consistent with Sec.  
226.5(b)(2)(ii)(B) and Sec.  226.54. Finally, it states that the 
prohibition in Sec.  226.5(b)(2)(ii)(B)(2) applies only during the 21-
day period following mailing or delivery of the periodic statement and 
applies only when the creditor receives a payment that satisfies the 
terms of the grace period within that 21-day period. An illustrative 
example is provided.

[[Page 7669]]

    As noted above, current comment 5(b)(2)(ii)-4 has been incorporated 
into comment 5(b)(2)(ii)-3. In its place, the Board has adopted 
guidance to address confusion regarding the interaction between the 
payment due date disclosure in proposed Sec.  226.7(b)(11)(i)(A) and 
the 21-day requirements in Sec.  226.5(b)(2)(ii) with respect to charge 
card accounts and charged-off accounts. Charge cards are typically 
products where outstanding balances cannot be carried over from one 
billing cycle to the next and are payable when the periodic statement 
is received. See Sec.  226.5a(b)(7). Therefore, the contractual payment 
due date for a charge card account is the date on which the consumer 
receives the periodic statement (although charge card issuers generally 
request that the consumer make payment by some later date). See comment 
5a(b)(7)-1. Similarly, when an account is over 180 days past due and 
has been placed in charged off status, full payment is due immediately.
    However, as discussed below, the Board has concluded that it would 
not be appropriate to apply the payment due date disclosure in Sec.  
226.7(b)(11)(i)(A) to periodic statements provided solely for charge 
card accounts or periodic statements provided for charged-off accounts 
where full payment of the entire account balance is due immediately. In 
addition, a card issuer could not comply with the requirement to mail 
or deliver the periodic statement 21 days before the payment due date 
if the payment due date is the date that the consumer receives the 
statement. Accordingly, comment 5(b)(2)(ii)-4 clarifies that, because 
the payment due date disclosure in Sec.  226.7(b)(11)(i)(A) does not 
apply to periodic statements provided solely for charge card accounts 
or periodic statements provided for charged-off accounts where full 
payment of the entire account balance is due immediately, Sec.  
226.5(b)(2)(ii)(A)(1) does not apply to the mailing or delivery of 
periodic statements provided solely for such accounts.
    Comment 5(b)(2)(ii)-4 further clarifies that, with respect to 
charge card accounts, Sec.  226.5(b)(2)(ii)(A)(2) nevertheless requires 
the card issuer to have reasonable procedures designed to ensure that a 
payment is not treated as late for any purpose during the 21-day period 
following mailing or delivery of that statement. Thus, notwithstanding 
the contractual due date, consumers with charge card accounts must 
receive at least 21 days to make payment without penalty.
    With respect to charged-off accounts, comment 5(b)(2)(ii)-4 
clarifies that, as discussed above with respect to comment 5(b)(2)(ii)-
2, a card issuer is only prohibited from treating a payment as late 
during the 21-day period following mailing or delivery of the periodic 
statement stating the due date for that payment. Thus, because a 
charged-off account will generally have several past due payments, the 
card issuer may continue to treat those payments as late during the 21-
day period for new payments.
    Comment 5(b)(2)(ii)-4 also clarifies the application of the grace 
period requirements in Sec.  226.5(b)(2)(ii)(B) to charge card and 
charged-off accounts. Specifically, the comment states that Sec.  
226.5(b)(2)(ii)(B) does not apply to charge card accounts because, for 
purposes of Sec.  226.5(b)(2)(ii)(B), a grace period is a period within 
which any credit extended may be repaid without incurring a finance 
charge due to a periodic interest rate and, consistent with Sec.  
226.2(a)(15)(iii), charge card accounts do not impose a finance charge 
based on a periodic rate. Similarly, the comment states that Sec.  
226.5(b)(2)(ii)(B) does not apply to charged-off accounts where full 
payment of the entire account balance is due immediately because such 
accounts do not provide a grace period.
    The final rule does not alter current comment 5(b)(2)(ii)-5, which 
provides that, when a consumer initiates a request, the creditor may 
permit, but may not require, the consumer to pick up periodic 
statements. Finally, the Board has adopted the proposed revisions to 
comment 5(b)(2)(ii)-6, which amend the cross-reference 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
    The Board republished proposed comment 5a(b)(1)-9 in the October 
2009 Regulation Z Proposal, which was originally published in the May 
2009 Regulation Z Proposed Clarifications. The comment clarified 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 pursuant to a deferred interest or similar 
transaction. The Board did not receive any comments opposing this 
provision, and the comment is adopted as proposed. The Board notes that 
comment 5a(b)(1)-9 would apply to account opening disclosures pursuant 
to comment 6(b)(1)-1.
5a(b)(5) Grace Period
    Sections 226.5a(b)(5) and 6(b)(2)(v) require that creditors 
disclose, among other things, any conditions on the availability of a 
grace period. As discussed below with respect to Sec.  226.54, the 
Credit Card Act provides that, when a consumer pays some but not all of 
the balance subject to a grace period prior to expiration of the grace 
period, the card issuer is prohibited from imposing finance charges on 
the portion of the balance paid. Industry commenters requested that the 
Board clarify that Sec. Sec.  226.5a(b)(5) and 6(b)(2)(v) do not 
require card issuers to disclose this limitation.
    In the January 2009 Regulation Z Rule, the Board provided the 
following model language for the disclosures required by Sec. Sec.  
226.5a(b)(5) and 6(b)(2)(v): ``Your due date is at least 25 days after 
the close of each billing cycle. We will not charge you any interest on 
purchases if you pay your entire balance by the due date each month.'' 
See, e.g., App. G-10(B).\21\ This language was developed through 
extensive consumer testing. However, the Board has not been able to 
conduct additional consumer testing with respect to disclosure of the 
limitations on the imposition of finance charges in Sec.  226.54. 
Accordingly, the Board is concerned that the inclusion of language 
attempting to describe those limitations could reduce the effectiveness 
of the disclosure.
---------------------------------------------------------------------------

    \21\ The model forms in Appendix G-17(B) and (C) also state: 
``We will begin charging interest on cash advances and balance 
transfers on the transaction date.''
---------------------------------------------------------------------------

    Furthermore, the Board does not believe that such a disclosure is 
necessary insofar as the model language accurately states that a 
consumer generally will not be charged any interest on purchases if the 
entire purchase balance is paid by the due date. Thus, although Sec.  
226.54 limits the imposition of finance charges if the consumer pays 
less than the entire balance, the model language achieves its intended 
purpose of explaining succinctly how a consumer can avoid all interest 
charges.
    Accordingly, the Board has created new comments 5a(b)(5)-4 and 
6(b)(2)(v)-4, which clarify that Sec. Sec.  226.5a(b)(5) and 6(b)(2)(v) 
do not require card issuers to disclose the limitations on the 
imposition of finance charges in Sec.  226.54. For additional clarity, 
the Board also states in a new comment 7(b)(8)-3 that a card issuer is

[[Page 7670]]

not required to include this disclosure when disclosing 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 
pursuant to Sec.  226.7(b)(8).

Section 226.6 Account-Opening Disclosures

6(b) Rules Affecting Open-End (Not Home-Secured) Plans
6(b)(2)(i) Annual Percentage Rate
    Section 226.6(b)(2)(i) sets forth disclosure requirements for rates 
that apply to open-end (not home-secured) accounts. Under the January 
2009 Regulation Z Rule, creditors generally must disclose the specific 
APRs that will apply to the account in the table provided at account 
opening. The Board, however, provided a limited exception to this rule 
where the APRs that creditors may charge vary by state for accounts 
opened at the point of sale. See Sec.  226.6(b)(2)(i)(E). Pursuant to 
that exception, creditors imposing APRs that vary by state and 
providing the disclosures required by Sec.  226.6(b) in person at the 
time an 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 in the account-opening table either (1) the specific 
APR applicable to the consumer's account, or (2) the range of the APRs, 
if the disclosure includes a statement that the APR varies by state and 
refers the consumer to the account agreement or other disclosure 
provided with the account-opening summary table where the APR 
applicable to the consumer's account is disclosed, for example in a 
list of APRs for all states.
    In the May 2009 Regulation Z Proposed Clarifications, the Board 
proposed to provide similar flexibility to the disclosure of APRs at 
the point of sale when rates vary based on the consumer's 
creditworthiness. Thus, the Board proposed to amend Sec.  
226.6(b)(2)(i)(E) to state that creditors providing the disclosures 
required by Sec.  226.6(b) in person at the time an 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 in the 
account-opening table either (1) the specific APR applicable to the 
consumer's account, or (2) the range of the APRs, if the disclosure 
includes a statement that the APR varies by state or depends on the 
consumer's creditworthiness, as applicable, and refers the consumer to 
an account agreement or other disclosure provided with the account-
opening summary table where the APR applicable to the consumer's 
account is disclosed, for example in a separate document provided with 
the account-opening table.
    The Board noted in the supplementary information to the proposed 
clarifications that if creditors are not given additional flexibility, 
some consumers could be disadvantaged because creditors may provide a 
single rate for all consumers rather than varying the rate, with some 
consumers receiving lower rates than would be offered under a single-
rate plan. Thus, without the proposed change, some consumers may be 
harmed by receiving higher rates. Moreover, the Board noted its 
understanding that the operational changes necessary to provide the 
specific APR applicable to the consumer's account in the table at point 
of sale when that rate depends on the consumer's creditworthiness may 
be too burdensome and increase creditors' risk of inadvertent 
noncompliance. Currently, creditors that establish open-end plans at 
point of sale provide account-opening disclosures at point of sale 
before the first transaction, with a reference to the APR in a separate 
document provided with the account agreement, and commonly provide a 
second, additional set of disclosures which reflect the actual APR for 
the account when, for example, a credit card is sent to the consumer.
    Industry commenters generally supported the proposed clarification, 
for the reasons stated by the Board in the supplementary information to 
the May 2009 Regulation Z Proposed Clarifications. Consumer group 
commenters opposed the proposed clarification. However, the Board notes 
that the consumer group comments were premised on consumer groups' 
understanding that the clarification would require disclosure of the 
actual rate that will apply to the consumer's account only at a later 
point of time, subsequent to when the other account-opening disclosures 
are provided at point of sale. The Board notes that the proposed 
clarification would require the disclosure of the specific APR that 
will apply to the consumer's account at the same time that other 
account-opening disclosures are provided at point of sale. The 
clarification would, however, provide creditors with the flexibility to 
disclose the specific APR on a separate page or document than the 
tabular disclosure.
    The Board is adopting the clarification to Sec.  226.6(b)(2)(i)(E) 
as proposed. The Board believes that permitting creditors to provide 
the specific APR information outside of the table at point of sale, 
with the expectation that consumers will also receive a second set of 
disclosures with the specific APR applicable to the consumer properly 
formatted in the account-opening table at a later time, strikes the 
appropriate balance between the burden on creditors and the need to 
disclose to consumers the specific APR applicable to the consumer's 
account in the account-opening table provided at point of sale. Under 
the final rule, the consumer must receive a disclosure of the actual 
APR that applies to the account at the point of sale, but that rate 
could be provided in a separate document.
6(b)(2)(v) Grace Period
    See discussion regarding Sec.  226.5a(b)(5).
6(b)(4) Disclosure of Rates for Open-End (Not Home-Secured) Plans
6(b)(4)(ii) Variable-Rate Accounts
    Section 226.6(b)(4)(ii) as adopted in the January 2009 Regulation Z 
Rule sets forth the rules for variable-rate disclosures at account-
opening, including accuracy requirements for the disclosed rate. The 
accuracy standard as adopted provides that a disclosed rate is accurate 
if it is in effect as of a ``specified date'' within 30 days before the 
disclosures are provided. See Sec.  226.6(b)(4)(ii)(G).
    Currently, creditors generally update rate disclosures provided at 
point of sale only when the rates have changed. The Board understands 
that some confusion has arisen as to whether the new rule as adopted 
literally requires that the account-opening disclosure specify a date 
as of which the rate was accurate, and that this date must be within 30 
days of when the disclosures are given. Such a requirement could pose 
operational challenges for disclosures provided at point of sale as it 
would require creditors to reprint disclosures periodically, even if 
the variable rate has not changed since the last time the disclosures 
were printed.
    The Board did not intend such a result. Requiring creditors to 
update rate disclosures to specify a date within the past 30 days would 
impose a burden on creditors with no corresponding benefit to 
consumers, where the disclosed rate is still accurate within the last 
30 days before the disclosures are provided. Accordingly, the Board 
proposed in May 2009 to revise the rule to clarify that a variable 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. No

[[Page 7671]]

significant issues were raised by commenters on this clarification, 
which is adopted as proposed.
    The Board is adopting one additional amendment to Sec.  
226.6(b)(4)(ii), to provide flexibility when variable rates are 
disclosed at point of sale. The Board understands that one consequence 
of the Credit Card Act's amendments regarding repricing of accounts, as 
implemented in Sec.  226.55 of this final rule, is that private label 
and retail card issuers may be more likely to impose variable, rather 
than non-variable, rates when opening new accounts. The Board further 
understands that account-opening disclosures provided at point of sale 
are often pre-printed, which presents particular operational 
difficulties when those disclosures must be replaced at a large number 
of retail locations. As discussed above, the general accuracy standard 
for variable rates disclosed at account opening is that a variable 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. The 
Board notes that for a creditor establishing new open-end accounts at 
point of sale, this could mean that the disclosures at each retail 
location must be replaced each month, if the creditor's variable rate 
changes in accordance with an index value each month.
    For reasons similar to those discussed above in the supplementary 
information to Sec.  226.6(b)(2)(i)(E), the Board believes that 
additional flexibility is appropriate for issuers providing account-
opening disclosures at point of sale when the rate being disclosed is a 
variable rate. The Board believes that permitting issuers to provide a 
variable rate in the table that is in effect within 90 days before the 
disclosures are provided, accompanied by a separate disclosure of a 
variable rate in effect within the last 30 days will strike the balance 
between operational burden on creditors and ensuring that consumers 
receive clear and timely disclosures of the terms that apply to their 
accounts.
    Accordingly, the Board is adopting a new Sec.  226.6(b)(4)(ii)(H), 
which states that creditors imposing annual percentage rates that vary 
according to an index that is not under the creditor's control that 
provide the disclosures required by Sec.  226.6(b) in person at the 
time an open-end (not home-secured) plan is established in connection 
with financing the purchase of goods or services may disclose in the 
table a rate, or range of rates to the extent permitted by Sec.  
226.6(b)(2)(i)(E), that was in effect within the last 90 days before 
the disclosures are provided, along with a reference directing the 
consumer to the account agreement or other disclosure provided with the 
account-opening table where an annual percentage rate applicable to the 
consumer's account in effect within the last 30 days before the 
disclosures are provided is disclosed.

Section 226.7 Periodic Statement

7(b) Rules Affecting Open-End (Not Home-Secured) Plans
7(b)(8) Grace Period
    See discussion regarding Sec.  226.5a(b)(5).
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 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, in the October 2009 Regulation Z 
Proposal, the Board proposed 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 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), in the October 2009 
Regulation Z Proposal, the Board proposed 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 would have been defined under proposed 
Sec.  226.2(a)(15)(ii). 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 have 
applied 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

[[Page 7672]]

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 proposed 
to exempt charge card accounts from the late payment disclosure 
requirements.
    In response to the October 2009 Regulation Z Proposal, several 
consumer groups encouraged the Board to use its authority under Section 
105(a) of TILA to require the payment due date and late payment 
disclosures for all open-end credit, not just ``credit card accounts 
under an open-end (not home-secured) consumer credit plan.''
    However, the final rule applies the payment due date and late 
payment disclosures only to credit card accounts under an open-end (not 
home-secured) consumer credit plan, as that term is defined in Sec.  
226.2(a)(15)(ii). Thus, 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 Sec.  226.7(b)(11)(ii), the final 
rule also exempts charge card accounts and charged-off accounts from 
the payment due date and late payment disclosure requirements.
    1. HELOC accounts. In the August 2009 Regulation Z HELOC Proposal, 
the Board did not propose to use its authority in TILA Section 105(a) 
to apply the due date and late payment disclosures to HELOC accounts 
subject to Sec.  226.5b, even if they are accessed by a credit card 
device. In the supplemental information to the August 2009 Regulation Z 
HELOC Proposal, the Board stated its belief that the payment due date 
and late payment disclosures are not needed for HELOC accounts to 
effectuate the purposes of TILA. The consequences to a consumer of not 
making the minimum payment by the payment due date are less severe for 
HELOC accounts than for unsecured credit cards. Unlike with unsecured 
credit cards, creditors offering HELOC accounts subject to 226.5b 
typically do not impose a late-payment fee until 10-15 days after the 
payment is due. In addition, as proposed in the August 2009 Regulation 
Z HELOC Proposal, creditors offering HELOC accounts would be restricted 
from terminating and accelerating the account, permanently suspending 
the account or reducing the credit line, or imposing penalty rates or 
penalty fees (except for the contractual late-payment fee) for a 
consumer's failure to pay the minimum payment due on the account, 
unless the payment is more than 30 days late. For unsecured credit 
cards, under the Credit Card Act, after the first year an account is 
opened, unsecured credit card issuers may increase rates and fees on 
new transactions for a late payment, even if the consumer is only one 
day late in making the minimum payment. Unlike with unsecured credit 
cards, as proposed in the August 2009 Regulation HELOC Proposal, even 
after the first year that the account is open, creditors offering HELOC 
accounts subject to Sec.  226.5b could not impose penalty rates or 
penalty fees (except for a contractual late-payment fee) on new 
transactions for a consumer's failure to pay the minimum payment on the 
account, unless the consumer's payment is more than 30 days late. For 
these reasons, the final rule does not extend the payment due date and 
late payment disclosures to HELOC accounts subject to Sec.  226.5b, 
even if they are accessed by a credit card device.
    2. Overdraft lines of credit and other general purpose credit 
lines. For several reasons, the Board also does not use its authority 
in TILA Section 105(a) to apply the due date and late payment 
disclosures to 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. 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.) \22\ Second, the 
Board is concerned that the operational costs of requiring creditors to 
comply with the payment due date and late payment 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 final rule 
does not extend the payment due date and late payment disclosure 
requirements to overdraft lines of credit and other general purpose 
credit lines.
---------------------------------------------------------------------------

    \22\ 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).
---------------------------------------------------------------------------

    3. 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.
    Under the October 2009 Regulation Z Proposal, a charge card issuer 
would have been required to disclose the payment due date on the 
periodic statement that was the same day each month. However, under 
proposed Sec.  226.7(b)(11)(ii), a charge card issuer would not have 
been 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. The Board noted that, 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 noted 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. 
Therefore, the Board concluded that 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.
    An industry commenter noted that charge cards should also be exempt 
from the requirement in new TILA Section 127(o) that the payment due 
date be the same day each month because that requirement, like the late 
payment disclosure requirements in revised TILA Section 127(b)(12), is 
not specifically enumerated in TILA Section 103(f) as applying to 
charge card issuers. Historically, however, the Board has generally 
used its authority under TILA Section 105(a) to apply the same 
requirements to credit and charge cards.

[[Page 7673]]

See Sec.  226.2(a)(15); comment 2(a)(15)-3. The Board has taken a 
similar approach with respect to implementation of the Credit Card Act. 
See Sec.  226.2(a)(15)(ii). Nevertheless, in these circumstances, the 
Board believes that it would not be appropriate to apply the 
requirements in TILA Section 127(b)(12) and (o) to periodic statements 
provided solely for charge card accounts.
    Charge card accounts generally require that the consumer pay the 
full balance upon receipt of the periodic statement. See comment 
2(a)(15)-3. In practice, however, the Board understands that charge 
card issuers generally request that consumers make payment by some 
later date. See comment 5a(b)(7)-1. As discussed below, proposed 
comments 7(b)(11)-1 and -2 clarify that the payment due date disclosed 
pursuant to Sec.  226.7(b)(11)(i)(A) must be the date on which the 
consumer is legally obligated to make payment, even if the contract or 
state law provides that a late payment fee cannot be assessed until 
some later date. Thus, proposed Sec.  226.7(b)(11)(i)(A) would have 
required a charge card issuer to disclose that payment was due 
immediately upon receipt of the periodic statement. As discussed above 
with respect to Sec.  226.5(b)(2)(ii), the Board believes that such a 
disclosure would be unnecessarily confusing for consumers and would 
prevent a charge card issuer from complying with the requirement that 
periodic statements be mailed or delivered 21 days before the payment 
due date. Instead, the Board believes that it is appropriate to amend 
proposed Sec.  226.7(b)(11)(ii)(A) to exempt charge card periodic 
statements from the requirements of Sec.  226.7(b)(11)(i).
    However, as discussed above, charge card issuers are still 
prohibited by Sec.  226.5(b)(2)(ii)(A)(2) from treating a payment as 
late for any purpose during the 21-day period following mailing or 
delivery of the periodic statement. Furthermore, Sec.  226.7(b)(11)(ii) 
makes clear the exemption is for periodic statements provided solely 
for charge card accounts; periodic statements provided for credit card 
accounts with a charge card feature and revolving feature must comply 
with the due date and late payment disclosure provisions as to the 
revolving feature. The Board is also retaining 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 Sec.  226.7(b)(12) below, to make clear 
the feature to which the disclosures apply.
    4. Charged-off accounts. In response to the October 2009 Regulation 
Z Proposal, one commenter requested that credit card issuers not be 
required to provide the payment due date and late payment disclosures 
for charged-off accounts since, on those accounts, consumers are over 
180 days late, the accounts have been placed in charge-off status, and 
full payment is due immediately. The final rule provides that the 
payment due date and late payment disclosures do not apply to a 
charged-off account where full payment of the entire account balance is 
due immediately. See Sec.  226.7(b)(11)(ii)(B). In these cases, it 
would be impossible for card issuers to ensure that the payment due 
date is the same day each month because the payment is due immediately 
upon receipt of the periodic statement, and issuers cannot control 
which day the periodic statement will be received. In addition, the 
late payment disclosures are not likely to be meaningful to consumers 
because consumers are likely aware of any penalties for late payment 
when an account is 180 days late.
    5. Lines of credit accessed solely by account numbers. In response 
to the October 2009 Regulation Z Proposal, one commenter requested that 
the Board provide an exemption from the due date and late payment 
disclosures for lines of credit accessed solely by account numbers. 
This commenter believed that this exemption would simplify compliance 
issues, especially for smaller retailers offering in-house revolving 
open-end accounts, in view of some case law indicating that a reusable 
account number could constitute a ``credit card.'' The final rule does 
not contain a specific exemption from the payment due date and late 
payment disclosure requirements for lines of credit accessed solely by 
account numbers. The Board believes that consumers that use these lines 
of credit (to the extent they are considered credit card accounts) 
would benefit from the due date and late payment disclosures.
    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. In the October 2009 Regulation Z 
Proposal, the Board proposed generally to retain the due date 
disclosure, except that this disclosure would have been required only 
for a card issuer offering a ``credit card account under an open-end 
(not home-secured) consumer credit plan,'' as that term would have been 
defined in proposed Sec.  226.2(a)(15)(ii).
    In addition, the Board proposed 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 proposed to require that the due date disclosure be provided 
regardless of whether a late payment fee or penalty rate could be 
imposed and proposed 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). The final rule retains this provision with 
one modification. For the reasons discussed above, the final rule 
amends proposed Sec.  226.7(b)(11)(ii) to provide that the due date and 
late payment disclosure requirements do not apply to periodic 
statements provided solely for charge card accounts or to periodic 
statements provided for charged-off accounts where payment of the 
entire account balance is due immediately.
    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. In the October 2009 
Regulation Z Proposal, the Board proposed 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 would have been 
defined in proposed Sec.  226.2(a)(15)(ii). The Board received no 
comments on this provision. The final rule adopts comment 7(b)(11)-1 as 
proposed.
    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

[[Page 7674]]

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 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), in the October 2009 Regulation Z 
Proposal, the Board proposed 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.
    Thus, the Board proposed to retain comment 7(b)(11)-2 with several 
revisions. First, the comment would have been 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 would have been defined in proposed Sec.  226.2(a)(15)(ii). 
Second, the comment would have been 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 proposed 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.
    The Board did not receive any comments on this aspect of the 
October 2009 Regulation Z Proposal. For the reasons described above, 
comment 7(b)(11)-2 is adopted as proposed. The Board adopts 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).
    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 proposed to implement this requirement 
by revising Sec.  226.7(b)(11)(i). The text the Board proposed to 
insert into amended Sec.  226.7(b)(11)(i) generally tracked the 
statutory language in new TILA Section 127(o) and stated 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 proposed 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)-6 clarified that the same day of the month 
means the same numerical day of the month. The proposed comment noted 
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 
stated in the proposal that requiring the due date to be the same 
numerical day each month would effectuate the statute, and that the 
Board believed permitting the due date to be the same relative day each 
month would not as effectively promote predictability for consumers.
    The Board noted 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 solicited 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.
    Several industry commenters requested that the Board permit 
creditors to set a due date that is the last day of each month, even 
though the last day of the month will fall on a different numerical 
date in some months. Other industry commenters stated that the rule 
should permit due dates that are the 29th or 30th of each month, noting 
that February is the only month that has fewer than 30 days. One 
commenter noted that there could be customer service problems with the 
rule as proposed, especially if a consumer requests a payment due date 
that is the last day of the month. The Board believes that the intent 
of new TILA Section 127(o) is that a consumer's due date be predictable 
and generally not change from month to month. However, comment 
7(b)(11)-6 has been revised from the proposal to provide that a

[[Page 7675]]

consumer's due date may be the last day of the month, notwithstanding 
the fact that this will not be the same numerical date for each month. 
The Board believes that consumers can generally understand what the 
last day of the month will be, and that this clarification effectuates 
the intent of new TILA Section 127(o) that consumer's due date be 
predictable from month to month.
    Proposed comment 7(b)(11)(i)-7 provided 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 cross-referenced 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 stated its belief 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. While the proposed comment 
referred 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)-7 did 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.
    The Board received only one comment on proposed comment 
7(b)(11)(i)-7, which is adopted as proposed. One industry commenter 
stated that the guidance that the due date may be adjusted from time to 
time, but must be the same thereafter is overly restrictive. This 
commenter stated that consumers should be able to choose their desired 
due date. The Board believes that comment 7(b)(11)(i)-7 does permit 
sufficient flexibility for card issuers to permit consumers to change 
their due dates from time to time. However, the Board believes that 
clarification that the due date must generally be the same each month 
is necessary to effectuate the purposes of new TILA Section 127(o) and 
to provide predictability to consumers regarding their payment due 
dates.
    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 proposed comment 7(b)(11)-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 
received no comments on comment 7(b)(11)-8, which is adopted as 
proposed.
    Finally, the Board proposed comment 7(b)(11)-9 to clarify the 
relationship between Sec. Sec.  226.7(b)(11)(i) and 226.10(d). As 
discussed elsewhere in this supplementary information, 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. Proposed comment 7(b)(11)-9 
clarified 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, if the consumer's due date is the 4th of every 
month, a card issuer may 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.
    Two industry commenters objected to proposed comment 7(b)(11)-9 and 
stated that creditors should be permitted to disclose the next business 
day as the due date if the regular due date falls on a weekend or 
holiday on which they do not receive or accept payments by mail. One 
commenter noted that this proposed requirement could create operational 
difficulties, because some creditors' systems do not process payments 
as timely if the payment is received after the posted due date on the 
periodic statement. The commenter stated that this would require some 
creditors to apply back-end due diligence to ensure that they are not 
inadvertently creating penalties, which can pose a significant burden 
on creditors.
    The Board is adopting comment 7(b)(11)-9 as proposed. The Board 
believes that the purpose of TILA Section 127(o) is to promote 
consistency and predictability regarding a consumer's due date. The 
Board believes that predictability is not promoted by permitting 
creditors to disclose different numerical dates during months where the 
consumer's payment due date falls, for example, on a weekend or holiday 
when the card issuer does not receive or accept payments by mail. This 
is consistent with the approach that the Board has taken with regard to 
payment due dates in comments 7(b)(11)-1 and -2, 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 have 
continued 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. No 
comments were received on this aspect of the proposal. The final rule 
adopts this provision as proposed.
    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. In the October 2009 Regulation Z Proposal, the 
Board proposed 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 would 
have been defined in proposed Sec.  226.2(a)(15)(ii).

[[Page 7676]]

    In response to the October 2009 Regulation Z Proposal, one 
commenter suggested that consumers would benefit from disclosure of the 
issuer's policy on late fee and penalty APRs on each periodic 
statement, whether or not the cardholder could trigger such 
consequences by making a late payment with respect to a particular 
billing period. The final rule retains comment 7(b)(11)-3 as proposed. 
The Board believes that issuers should be given the flexibility to 
tailor the late payment disclosure to the activity on the consumer's 
account, which will likely make the disclosure more useful to 
consumers.
    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 the 
creditor's 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. In the October 2009 Regulation Z 
Proposal, the Board proposed 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 would have been 
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.
    In response to the October 2009 Regulation Z Proposal, one industry 
commenter requested that the Board allow credit card issuers to 
disclose a range of rates or a highest rate for a card program where 
different penalty APRs apply to different accounts in the program. 
According to the commenter, different penalty APRs may apply to 
consumers' accounts within the same card program because some consumers 
in a program may not have received a change in terms for a program 
(possibly because the account was not active at the time of the 
change), or the consumer may have opted out of a change in terms 
related to an increase in the penalty APR. The commenter indicates that 
some systems do not have the operational capability to tailor the 
periodic statement warning message as a variable message and include 
the precise penalty APR that applies to each account. The commenter 
believed that there is no detriment to a consumer in allowing a more 
generic warning message because the intent of the warning message is to 
give consumers notice that paying late can have serious consequences. 
Section 226.7(b)(11)(i)(B) and comment 7(b)(11)-4 are adopted as 
proposed. The Board did not amend these provisions to allow card 
issuers to disclose to a consumer a range of rates or highest rate for 
a card program, where those rates do not apply to a consumer's account. 
The Board is mindful of compliance costs associated with customizing 
the disclosure to reflect terms applicable to a consumer's account; 
however, the Board believes the purposes of TILA would not be served if 
a consumer received a late-payment disclosure for a penalty APR that 
exceeded, perhaps substantially, the penalty APR the consumer could be 
assessed under the terms of the legal obligation of the account. For 
that reason, Sec.  226.7(b)(11)(i)(B) and comment 7(b)(11)-4 provide 
that ranges or the highest fee or penalty APR must be those applicable 
to the consumer's account. Accordingly, a creditor may state a range or 
highest penalty APR only if all penalty APRs in that range or the 
highest penalty APR would be permitted to be imposed on the consumer's 
account under the terms of the consumer's account.
    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 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. In the October 2009 Regulation Z Proposal, the Board 
proposed 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 would 
have been defined in proposed Sec.  226.2(a)(15)(ii).
    In response to the October 2009 Regulation Z Proposal, one 
commenter suggested that the Board revise comment 7(b)(11)-5 to provide 
that if the highest APR has previously been triggered on an account, a 
creditor must modify the language of the late payment disclosure to 
indicate that the penalty APR has been increased due to previous late 
payment. The final rule adopts comment 7(b)(11)-5 as proposed. To ease 
compliance burdens, the Board believes that it is appropriate to 
provide flexibility to card issuers in providing the late payment 
disclosure when the highest penalty APR has previously been triggered 
on the account. The Board notes that consumers will receive advance 
notice under Sec.  226.9(g) when a penalty APR is being imposed on the 
consumer's account. In cases where the highest penalty APR has been 
imposed, the Board does not believe that allowing the late payment 
disclosures to continue to include the amount of the penalty APR and 
the warning that the rate may be imposed for an untimely payment is 
likely to confuse consumers.
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

[[Page 7677]]

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 
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, in the October 2009 Regulation Z 
Proposal, the Board proposed to revise Sec.  226.7(b)(12) to implement 
Section 201 of the Credit Card Act.
    Limiting 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, in the October 2009 Regulation Z 
Proposal, the Board proposed 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 would have been defined in 
proposed Sec.  226.2(a)(15)(ii).
    As proposed, the final rule limits 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 Sec.  
226.2(a)(15)(ii). As discussed in more detail in the section-by-section 
analysis to Sec.  226.2(a)(15)(ii), the term ``credit card account 
under an open-end (not home-secured) consumer credit plan'' means any 
open-end 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 adopts 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

[[Page 7678]]

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 
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.\23\
---------------------------------------------------------------------------

    \23\ Changes in U.S. Family Finances from 2004 to 2007.
---------------------------------------------------------------------------

    As discussed in the supplementary information to the August 2009 
Regulation Z HELOC Proposal, the nature of consumers' use of HELOCs 
also supports 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, the final rule exempts 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.
    2. Overdraft lines of credit and other general purpose credit 
lines. The final rule also exempts 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.) \24\ 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 uses 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).
---------------------------------------------------------------------------

    \24\ Changes in U.S. Family Finances from 2004 to 2007.
---------------------------------------------------------------------------

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

[[Page 7679]]

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) would have set 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) would 
have set 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 have been 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 would have contained 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 received no comments on this aspect of the proposal. The 
Board adopts the above warning statement as proposed. The Board tested 
the 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 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). In the October 2009 Regulation Z Proposal, the Board proposed 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 have been 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 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.
    Proposed Sec.  226.7(b)(12)(i)(B) would have provided 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 have been 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 have been rounded up to the nearest whole year if the estimate 
contains a fractional year equal to or greater than 0.5. In response to 
the October 2009 Regulation Z Proposal, several consumer groups 
commented that the minimum payment repayment estimate should not be 
rounded to the nearest year if the repayment period is 2 years or more. 
Instead, the Board should require in those cases that the minimum 
payment repayment estimate be disclosed in years and months. For 
example, assume a minimum payment repayment estimate of 209 months. The 
consumer groups suggest that credit card issuers should be required to 
disclose the repayment estimate of 209 months as 17 years and 5 months, 
instead of disclosing this repayment estimate as 17 years which would 
be required under the rounding rules set forth in the proposal. The 
consumer groups indicated that six months can be a significant amount 
of time for some consumers.
    As proposed, the final rule in 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 have been rounded to the nearest whole year. 
The Board adopts this provision of the final rule 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.
    Thus, if the minimum payment repayment estimate is 2 years or more, 
the final rule does not require credit card issuers to disclose the 
minimum payment repayment estimate in years and months, such as 
disclosing the minimum payment repayment estimate of 209 months as 17 
years and 5 months, instead of disclosing this repayment estimate as 17 
years (which is required under the rounding rules set forth in the 
final rule). The Board recognizes that the minimum payment repayment 
estimates, as calculated in Appendix M1 to part 226, are estimates, 
calculated

[[Page 7680]]

using a number of assumptions about current and future account terms. 
The Board believes that disclosing minimum payment repayment estimates 
that are 2 years or more in years and months might cause consumers to 
believe that the estimates are more accurate than they really are, 
especially for longer repayment periods. The Board believes that 
rounding the minimum payment repayment estimate to the nearest year (if 
the repayment estimate is 2 years or more) provides consumers with an 
appropriate estimate of how long it would take to repay the outstanding 
balance if only minimum payments are 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) provided 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 have been 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. The final rule adopts this provision as proposed.
    3. Disclosure of assumptions used to calculate the minimum payment 
repayment estimate and the minimum payment total cost estimate. Under 
proposed Sec.  226.7(b)(12)(i)(D), a creditor would have been 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 final rule 
adopts this provision as proposed. 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 
final rule does not 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) provided 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 Appendix M1 to part 226, the proposed 
estimated monthly payment for repayment in 36 months would have been 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 Appendix M1 to part 226, the proposed total cost 
estimate for repayment in 36 months would have been 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 would 
have been rounded to the nearest whole dollar. The final rule adopts 
these provisions as proposed, except with several additional exceptions 
to when the 36-month disclosures must be disclosed as discussed below.
    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 would have required 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 have been 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 have represented 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. In response to the 
October 2009 Regulation Z Proposal, one commenter indicated that the 
Board should not require the savings estimate for repayment in 36 
months because this disclosure would not be helpful to consumers. The 
final rule requires credit card issuers generally to disclose the 
savings estimate for repayment in 36 months on periodic statements, as 
proposed. The Board adopts this disclosure requirement 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 
continues to believe 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 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

[[Page 7681]]

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 have been 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) was 3 years or less. The Board retains this 
exemption in the final rule with several technical revisions. The Board 
adopts 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 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 when it is 
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.
    In the final rule, the provision that exempts credit card issuers 
from disclosing on the periodic statement the disclosures related to 
repayment in 36 months if the minimum payment repayment estimate 
disclosed under Sec.  226.7(b)(12)(i)(B) is 3 years or less has been 
moved to Sec.  226.7(b)(1)(i)(F)(2)(i). In addition, the language of 
this exemption has been revised to clarify that the exemption applies 
if the minimum payment repayment estimate disclosed on the periodic 
statement under Sec.  226.7(b)(12)(i)(B) after rounding is 3 years or 
less. For example, under the final rule, if the minimum payment 
repayment estimate is 2 years 6 month to 3 years 5 months, issuers 
would be required to disclose on the periodic statement that it would 
take 3 years to pay off the balance in full if making only the minimum 
payment. In these cases, an issuer would not be required to disclose 
the 36-month disclosures on the periodic statement because the minimum 
payment repayment estimate disclosed to the consumer on the periodic 
statement (after rounding) is 3 years or less. Comment 7(b)(12)(i)(F)-1 
has been added to clarify these disclosure rules.
    4. Estimated monthly payment for repayment in 36 months is less 
than the minimum payment for a particular billing cycle. In response to 
the October 2009 Regulation Z Proposal, several commenters suggested 
that card issuer should not be required to disclose the 36-month 
disclosures in a billing cycle where the minimum payment for that 
billing cycle is higher than the payment amount that would be disclosed 
in order to pay off the account in 36 months (i.e., the estimated 
monthly payment for repayment in 36 months). One commenter indicated 
that this can occur for credit card programs that use a graduated 
payment schedule, which require a larger minimum payment in the initial 
months after a transaction on the account. This may also occur when an 
account is past due, and the required minimum payment for a particular 
billing cycle includes the entire past due amount. Commenters were 
concerned that disclosing an estimated monthly payment for repayment in 
36 months in a billing cycle where this estimated payment is lower than 
the required minimum payment for that billing cycle might be confusing 
and even deceptive to consumers. A consumer that paid the estimated 
monthly payment for repayment in 36 months (which is lower than the 
required minimum payment that billing cycle) could incur a late fee and 
be subject to other penalties. The Board shares these concerns, and 
thus, the final rule provides that a card issuer is not required to 
disclose the 36-month disclosures for any billing cycle where the 
estimated monthly payment for repayment in 36 months, as described in 
Appendix M1 to part 226, rounded to the nearest whole dollar that is 
calculated for a particular billing cycle is less than the minimum 
payment required for the plan for that billing cycle. See Sec.  
226.7(b)(12)(i)(F)(2)(ii). The Board adopts this exemption pursuant to 
the Board's authority exception and exemption authorities under TILA 
Section 105(a). The Board has considered the statutory factors 
carefully, and based on that review, believes that the exemption is 
appropriate. Requiring that the 36-month disclosures be disclosed on 
the periodic statement when they 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.
    5. A billing cycle where an account has both a balance on a 
revolving feature and on a fixed repayment feature. In response to the 
October 2009 Regulation Z Proposal, several commenters raised concerns 
that the 36-month disclosures could be misleading in a particular 
billing cycle where an account has both a balance in a revolving 
feature where the required minimum payments for this feature will not 
amortize that balance in a fixed amount of time specified in the 
account agreement and a balance in a fixed repayment feature where the 
required minimum payment for this fixed repayment feature will amortize 
that balance in a fixed amount of time specified in the account 
agreement which is less than 36 months. For example, assume a retail 
card has several features. One feature is a general revolving feature, 
where the required minimum payment for this feature does not pay off 
the balance in a fixed period of time. Another feature allows consumers 
to make specific types of purchases (such as furniture purchases, or 
other large purchases), with a required minimum payment that will

[[Page 7682]]

pay off the purchase within a fixed period of time as set forth in the 
account agreement that is less than 36 months, such as one year. 
Commenters indicated that in many cases, where this type of account has 
balances on both the revolving feature and fixed repayment feature for 
a particular billing cycle, the required minimum due may initially be 
higher than what would be required to repay the entire account balance 
in 36 equal payments. In addition, calculation of the estimated monthly 
payment for repayment in 36 months assumes that the entire balance may 
be repaid in 36 months, while under the account agreement the balance 
in the fixed repayment feature must be repaid in a shorter timeframe. 
Based on these concerns, the Board amends the final rule to provide 
that a card issuer is not required to provide the 36-month disclosures 
on a periodic statement for a billing cycle where an account has both a 
balance in a revolving feature where the required minimum payments for 
this feature will not amortize that balance in a fixed amount of time 
specified in the account agreement and a balance in a fixed repayment 
feature where the required minimum payment for this fixed repayment 
feature will amortize that balance in a fixed amount of time specified 
in the account agreement which is less than 36 months. See Sec.  
226.7(b)(12)(i)(F)(2)(iii). The Board adopts this exemption pursuant to 
the Board's authority exception and exemption authorities under TILA 
Section 105(a). The Board has considered the statutory factors 
carefully, and based on that review, believes that the exemption is 
appropriate. Requiring that the 36-month disclosures be disclosed on 
the periodic statement when they 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.
    6. Disclosure of assumptions used to calculate the 36-month 
disclosures. If a card issuer is required to provide the 36-month 
disclosures, proposed Sec.  226.7(b)(12)(i)(F)(2) would have provided 
that a credit card issuer must disclose as part of those disclosures 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 final rule retains this provision as proposed, except that this 
provision is moved to Sec.  226.7(b)(12)(i)(F)(1)(ii). The Board 
believes that this information is needed to help consumers understand 
the estimated monthly payment for repayment in 36 months. The final 
rule does not 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.
    Disclosure of extremely long repayment periods. In response to the 
October 2009 Regulation Z Proposal, one commenter indicated that it had 
observed accounts that result in very long repayment periods. This 
commenter indicated that this situation usually results when the 
minimum payment requirements are very low in proportion to the APRs on 
the account. The commenter indicated that these scenarios result most 
frequently when issuers endeavor to provide temporary relief to 
consumers during periods of hardship, workout and disasters such as 
floods. This commenter indicated that requiring issuers to calculate 
and disclose these long repayment periods would cause compliance 
problems, because the software program cannot be written to execute an 
ad infinitum number of cycles. The commenter requested that the Board 
establish a reasonable maximum number of years for repayment and 
provide an appropriate statement disclosure message to reflect an 
account that exceeds the number of years and total costs provided.
    With respect to these temporarily reduced minimum payments, the 
calculation of these long repayment periods often result from assuming 
that the temporary minimum payment will apply indefinitely. The Board 
notes that guidance provided in Appendix M1 to part 226 for how to 
handle temporary minimum payments may reduce the situations in which 
the calculation of a long repayment period would result. In particular, 
as discussed in more detail in the section-by-section analysis to 
Appendix M1 to part 226, Appendix M1 provides that 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. In Appendix M1 to part 226, the term ``promotional terms'' 
is defined as terms of a cardholder's account that will expire in a 
fixed period of time, as set forth by the card issuer. Appendix M1 to 
part 226 clarifies that issuers have two alternatives for handling 
promotional minimum payments. Under the first alternative, an issuer 
may disregard the promotional minimum payment during the promotional 
period, and instead calculate the minimum payment repayment estimate 
using the standard minimum payment formula that is applicable to the 
account. For example, assume that a promotional minimum payment of $10 
applies to an account for six months, and then after the promotional 
period expires, the minimum payment is calculated as 2 percent of the 
outstanding balance on the account or $20 whichever is greater. An 
issuer may assume during the promotional period that the $10 
promotional minimum payment does not apply, and instead calculate the 
minimum payment disclosures based on the minimum payment formula of 2 
percent of the outstanding balance or $20, whichever is greater. 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 the compliance burden on issuers, without 
a significant impact on the accuracy of the repayment estimates for 
consumers.
    Under the second alternative, an issuer in calculating the minimum 
payment repayment estimate during the promotional period may choose not 
to disregard the promotional minimum payment but instead may calculate 
the minimum payments as they will be calculated over the duration of 
the account. In the above example, an issuer could calculate the 
minimum payment repayment estimate during the promotional period by 
assuming the $10 promotional minimum payment will apply for the first 
six months and then assuming the 2 percent or $20 (whichever is 
greater) minimum payment formula will apply until the balance is 
repaid. Appendix M1 to part 226 clarifies, however, that in calculating 
the minimum payment repayment estimate during a promotional period, an 
issuer may not assume that the promotional minimum payment will apply 
until the outstanding balance is paid off by making only minimum 
payments (assuming the repayment estimate is longer than the 
promotional period). In the above example, the issuer may not calculate 
the minimum payment repayment estimate during the promotional period by 
assuming that the $10 promotional minimum payment will apply beyond the 
six months until the outstanding balance is repaid.

[[Page 7683]]

    While the Board believes that the above guidance for how to handle 
temporary minimum payments may reduce the situations in which the 
calculation of a long repayment period would result, the Board 
understands that there may still be circumstances where long repayment 
periods result, because the standard minimum payment is low in 
comparison to the APR that applies to the account. The final rule does 
not contain special rules for disclosing extremely long repayment 
periods, such as allowing credit card issuers to disclose long 
repayment periods as ``over 100 years.'' As proposed, the final rule 
requires a credit card issuer to disclose the minimum payment repayment 
estimate, as described in Appendix M1 to part 226, on the periodic 
statement even if that repayment period is extremely long, such as over 
100 years. The Board believes that it was Congress' intent to require 
that estimates of the repayment periods be disclosed on periodic 
statements, even if the repayment periods are extremely long.
    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) provided 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). The final rule adopts this provision as proposed. As 
discussed in more detail below, 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, in the 
October 2009 Regulation Z Proposal, the Board proposed to make 
adjustments to the above statutory requirements when negative or no 
amortization occurs. Specifically, when negative or no amortization 
occurs, the Board proposed 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. The final rule adopts 
these disclosures, as proposed, 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). 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. Under the final rule, these statutory 
disclosures are replaced with a warning that the consumer will never 
repay the balance if making minimum payments each month.
    In addition, under the final rule, 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, under the 
final rule, a credit card issuer must 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.
    Under the final rule, 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 Appendix M1 to part 226. The 
Board adopts 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 exemption is appropriate. 
As discussed above, when negative or no amortization occurs, a minimum 
payment total 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 final rule, a credit card issuer would not be 
required to disclose a minimum payment total cost estimate as described 
in proposed Appendix M1 to part 226. Because the minimum payment total 
cost estimate will not be disclosed when

[[Page 7684]]

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) provided 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) would have applied when amortization 
occurs and the 36-month disclosures were required to be disclosed under 
proposed Sec.  226.7(b)(12)(i)(F). In this case, as discussed above, a 
credit card issuer would have been 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. Sample G-18(C)(1) is adopted as proposed, with technical 
edits to the heading of the sample form.
    As shown in Sample G-18(C)(1), card issuers are required to provide 
the following disclosures in the form of a table with headings, content 
and format substantially similar to 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 is incorporated into the headings for the 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 must be disclosed above 
the table and the toll-free telephone number must be disclosed below 
the table.
    Proposed Sample G-18(C)(2) would have applied when amortization 
occurs and the 36-month disclosures were not required to be disclosed 
under proposed Sec.  226.7(b)(12)(i)(F). In this case, as discussed 
above, a credit card issuer would have been 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; and (5) the toll-free telephone number for obtaining 
information about credit counseling services. Sample G-18(C)(2) is 
adopted as proposed, with technical edits to the heading of the sample 
form.
    As shown in Sample G-18(C)(2), disclosure of the above information 
is similar in format to how this information is disclosed in Sample G-
18(C)(1). Specifically, as shown in Sample G-18(C)(2), card issuers are 
required to disclose the following disclosures in the form of a table 
with headings, content and format substantially similar to 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 is incorporated into the headings for the 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 must be disclosed above 
the table and the toll-free telephone number must be disclosed below 
the table.
    Proposed Sample G-18(C)(3) would have applied when negative or no 
amortization occurs. In this case, as discussed above, a credit card 
issuer would have been required under

[[Page 7685]]

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. Sample G-18(C)(3) is 
adopted as proposed.
    As shown in 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 adopts this 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, 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 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 proposed, the final rule does not provide that the 
toll-free telephone number must be in a tabular format. See Samples G-
18(C)(1), G-18(C)(2) and G-18(C)(3). The Board adopts 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 final rule requires that the 
toll-free telephone number be grouped with the other repayment 
information.
    Format requirements set forth in Sec.  226.7(b)(13). Proposed Sec.  
226.7(b)(12)(iii) provided that a credit card issuer must provide the 
repayment disclosures in accordance with the format requirements of 
proposed Sec.  226.7(b)(13). The final rule adopts this provision as 
proposed. As discussed in more detail in the section-by-section 
analysis to Sec.  226.7(b)(13), the final rule in Sec.  226.7(b)(13) 
requires that the repayment disclosures required to be disclosed under 
Sec.  226.7(b)(12) must be disclosed closely proximate to the minimum 
payment due. In addition, under the final rule, 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 proposed to 
implement Section 201(c) of the Credit Card Act in Sec.  
226.7(b)(12)(iv). In developing this final rule, 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 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) required that a card issuer 
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) required 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.
    Several industry commenters stated that requiring card issuers to 
provide information regarding credit counseling through a toll-free 
number would be unduly burdensome, particularly for small institutions 
that do not currently have automated response systems for providing 
consumers with information about their accounts over the telephone. 
These commenters requested that card issuers instead be permitted to 
refer consumers to the United States Trustee or the Board. However, 
Section 201(c) of the Credit Card Act explicitly requires that card 
issuers establish and maintain

[[Page 7686]]

a toll-free telephone number for providing information regarding 
approved credit counseling services. Nevertheless, as discussed below, 
the Board has made several revisions to proposed Sec.  226.7(b)(12)(iv) 
in order to reduce the burden of compliance.
    In particular, the Board has revised Sec.  226.7(b)(12)(iv)(A) to 
clarify that card issuers are only required to disclose information 
regarding approved organizations to the extent available from the 
United States Trustee or a bankruptcy administrator. 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, organized by state.\25\ For states 
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, as 
discussed in the proposal, the information that Sec.  226.7(b)(12)(iv) 
requires a card issuer to provide is readily available to issuers.
---------------------------------------------------------------------------

    \25\ 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).
---------------------------------------------------------------------------

    The Board has also revised Sec.  226.7(b)(12)(iv)(A) to clarify 
that the card issuer must provide information regarding approved 
organizations in, at its option, either the state in which the billing 
address for the account is located or the state specified by the 
consumer. Furthermore, although the United States Trustee's Web site 
also organizes information regarding approved organizations by the 
language in which the organization can provide credit counseling 
services, the Board has removed the requirement in proposed Sec.  
226.7(b)(12)(iv)(B) that card issuers provide this information upon 
request. Although consumer group commenters supported the requirement, 
comments from small institutions argued that Section 201(c) does not 
expressly require provision of this information and that it would be 
particularly burdensome for card issuers to do so. Specifically, it 
would be difficult for a card issuer to use an automated response 
system to comply with a consumer's request for a particular language 
without listing each of the nearly thirty languages listed on the 
United States Trustee's Web site. Instead, a card issuer would have to 
train its customer service representatives to respond to such requests 
on an individualized basis. Accordingly, although information regarding 
approved organizations that provide credit counseling services in 
languages other than English can be useful to consumers, it appears 
that the costs associated with providing this information through the 
toll-free number outweigh the benefits. Instead, as discussed below, 
the Board has revised the proposed commentary to provide guidance for 
card issuers on how to handle requests for this type of information 
(such as by referring the consumer to the United States Trustee's Web 
site).
    The Board has replaced proposed Sec.  226.7(b)(12)(iv)(B) with a 
requirement that card issuers update information regarding approved 
organizations at least annually for consistency with the information 
provided by the United States Trustee or a bankruptcy administrator. 
This requirement was previously proposed as guidance in comment 
7(b)(12)(iv)-2. In connection with that proposed guidance, the Board 
solicited comment on whether card issuers should be required to update 
the credit counseling information they provide to consumers more or 
less frequently. Commenters generally supported an annual requirement, 
which the Board has adopted. Although one credit counseling 
organization suggested that card issuers be required to coordinate 
their verification process with the United States Trustee's review of 
its approvals, the Board believes such a requirement would 
unnecessarily complicate the updating process.
    Because different credit counseling organizations may provide 
different services and charge different fees, the Board stated in the 
proposal that providing information regarding at least three approved 
organizations would enable consumers to make a choice about the 
organization that best suits their needs. However, the Board solicited 
comment on whether card issuers should provide information regarding a 
different number of approved organizations. In response, commenters 
generally agreed that the provision of information regarding three 
approved organizations was appropriate, although some industry 
commenters argued that card issuers generally have an established 
relationship with one credit counseling organization and should not be 
required to disclose information regarding additional organizations. 
Because the Board believes that consumers should be provided with more 
than one option for obtaining credit counseling services, the final 
rule adopts the requirement that card issuers provide information 
regarding three approved organizations.
    In addition, some credit counseling organizations and one city 
government consumer protection agency requested that the Board require 
card issuers to disclose information regarding at least one 
organization that operates in the consumer's local community. However, 
Section 201(c) of the Credit Card Act does not authorize the Board to 
impose this type of requirement. In addition, the Board believes that 
it would be difficult to develop workable standards for determining 
whether a particular organization operated in a consumer's community. 
Nevertheless, the Board emphasizes that nothing in Sec.  
226.7(b)(12)(iv) should be construed as preventing card issuers from 
providing information regarding organizations that have been approved 
by the United States Trustee or a bankruptcy administrator to provide 
credit counseling services in a consumer's community.
    Proposed Sec.  226.7(b)(12)(iv) relied 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 required the creditor to provide 
information about obtaining credit counseling services.\26\ 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 have required card issuers to disclose information about debt 
management services.
---------------------------------------------------------------------------

    \26\ Similarly, proposed Sec.  226.7(b)(12)(i)(E) and (ii)(E) 
only required 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

[[Page 7687]]

Sec.  226.7(b)(12)(iv) clarified 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.
    Commenters did not object to these adjustments, which are adopted 
in the final rule. However, the United States Trustee and several 
credit counseling organizations requested that the Board clarify that 
the credit counseling services subject to review by the United States 
Trustee or a bankruptcy administrator are designed for consumers who 
are considering whether to file for bankruptcy and may not be helpful 
to consumers who are seeking more general credit counseling services. 
Based on these comments, the Board has made several revisions to the 
commentary for Sec.  226.7(b)(12)(iv), which are discussed below.
    Proposed comment 7(b)(12)(iv)-1 clarified 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 also clarified 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). This comment has been revised for consistency with 
the revisions to Sec.  226.7(b)(12)(iv)(A) but is otherwise adopted as 
proposed.
    Proposed comment 7(b)(12)(iv)-2 clarified 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, such as 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. These aspects of the proposed comment have been revised 
for consistency with the revisions to Sec.  226.7(b)(12)(iv) but are 
otherwise adopted as proposed.
    However, because the Board understands that many nonprofit 
organizations provide credit counseling services under a name that is 
different than the legal name under which the organization has been 
approved by the United States Trustee or a bankruptcy administrator, 
the Board has revised comment 7(b)(12)(iv)-2 to clarify that, if 
requested by the organization, the card issuer may at its option 
disclose both the legal name and the name used by the organization. 
This clarification will reduce the possibility of consumer confusion in 
these circumstances while still ensuring that consumers can verify that 
card issuers are referring them to organizations approved by the United 
States Trustee or a bankruptcy administrator.
    In addition, because the contact information provided by the United 
States Trustee or a bankruptcy administrator relates to pre-bankruptcy 
credit counseling, the Board has revised comment 7(b)(12)(iv)-2 to 
clarify that, at the request of an approved organization, a card issuer 
may at its option provide a street address, telephone number, or Web 
site address for the organization that is different than the street 
address, telephone number, or Web site address obtained from the United 
States Trustee or a bankruptcy administrator. This will enable card 
issuers to provide contact information that directs consumers to 
general credit counseling services rather than pre-bankruptcy 
counseling services. Furthermore, because some approved organizations 
may not provide general credit counseling services, the Board has 
revised comment 7(b)(12)(iv)-2 to clarify that, if requested by an 
approved organization, a card issuer must not provide information 
regarding that organization through the toll-free number.
    As noted above, the Board has also revised the commentary to Sec.  
226.7(b)(12)(iv) to provide guidance regarding the handling of requests 
for information about approved organizations that provide credit 
counseling services in languages other than English. Specifically, 
comment 7(b)(12)(iv)-2 states that a card issuer may at its option 
provide such information through the toll-free number or, in the 
alternative, may state that such information is available from the Web 
site operated by the United States Trustee.
    Finally, the Board has revised comment 7(b)(12)(iv)-2 to clarify 
that Sec.  226.7(b)(12)(iv) does not require a card issuer to disclose 
that credit counseling organizations have been approved by the United 
States Trustee or a bankruptcy administrator. However, if a card issuer 
chooses to make such a disclosure, the revised comment clarifies that 
the card issuer must provide certain additional information in order to 
prevent consumer confusion. This revision responds to concerns raised 
by the United States Trustee that, if a consumer is informed that a 
credit counseling organization has been approved by the United States 
Trustee, the consumer may incorrectly assume that all credit counseling 
services provided by that organization are subject to approval by the 
United States Trustee. Accordingly, the revised comment clarifies that, 
in these circumstances, a card issuer must disclose the following 
additional information: (1) The United States Trustee or a bankruptcy 
administrator has determined that the organization meets the minimum 
requirements for nonprofit pre-bankruptcy budget and credit counseling; 
(2) the organization may provide other credit counseling services that 
have not been reviewed by the United States Trustee or a bankruptcy 
administrator; and (3) the United States Trustee or the bankruptcy 
administrator does not endorse or recommend any particular 
organization.
    Proposed comment 7(b)(12)(iv)-3 clarified 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. This comment is adopted as proposed.
    Proposed comment 7(b)(12)(iv)-4 clarified 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

[[Page 7688]]

credit counseling services. The Board has adopted this comment as 
proposed.
    Proposed comment 7(b)(12)(iv)-5 clarified 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). This comment is adopted as 
proposed.
    Proposed comment 7(b)(12)(iv)-6 clarified 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. This 
guidance is adopted as proposed. In addition, the Board has revised 
this comment to clarify that disclosing the United States Trustee's Web 
site address does not by itself constitute a statement that 
organizations have been approved by the United States Trustee for 
purposes of comment 7(b)(12)(iv)-2.
    Finally, proposed comment 7(b)(12)(iv)-7 clarified 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 
also provides 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. This comment is adopted as proposed.
7(b)(12)(v) Exemptions
    As explained above, as proposed, the final rule provides that the 
repayment disclosures required under 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 Sec.  
226.2(a)(15)(ii).
    In addition, as discussed below, the final rule contains 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 
following exemptions are appropriate.
    Exemption for charge cards. In the October 2009 Regulation Z 
Proposal, the Board proposed to exempt charge cards from the repayment 
disclosure requirements. 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. The Board adopts this exemption as proposed. See Sec.  
226.7(b)(12)(v)(A). The Board believes that the repayment disclosures 
would not be useful for consumers with charge card accounts.
    Exemption where cardholders have paid their accounts in full for 
two consecutive billing cycles. In proposed Sec.  226.7(b)(v)(B), the 
Board proposed 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.
    In response to the October 2009 Regulation Z Proposal, several 
consumer groups argued that this exemption should be deleted. These 
consumer groups believe that even consumers that pay their credit card 
accounts in full each month should be provided repayment disclosures 
because these disclosures will inform those consumers of the 
disadvantages of changing their payment behavior. These consumer groups 
believe these repayment disclosures would educate these consumers on 
the magnitude of the consequences of making only minimum payments and 
may induce these consumers to encourage their friends and family 
members not to make only the minimum payment each month on their credit 
card accounts. On the other hand, several industry commenters requested 
that the Board broaden this exception to not require repayment 
disclosures in a particular billing cycle if there is a zero balance or 
credit balance in the current cycle, regardless of whether this 
condition existed in the previous cycle.
    The final rule retains this exception as proposed. The Board 
believes the two consecutive billing cycle 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 
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 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 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 proposed 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 final rule retains this exemption as proposed. The 
Board believes that the repayment disclosures would not be helpful to 
consumers in this context.

[[Page 7689]]

    As discussed in more detail below, the Board notes that this 
exemption also would apply to a charged-off account where payment of 
the entire account balance is due immediately. Comment 7(b)(12)(v)-1 is 
added to provide examples of when this exception would apply.
    Other exemptions. In response to the October 2009 Regulation Z 
Proposal, several commenters requested that the Board include several 
additional exemptions to the repayment disclosures set forth in Sec.  
226.7(b)(12). These suggested exemptions are discussed below.
    1. Fixed repayment periods. 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 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.
    In the October 2009 Regulation Z Proposal, the Board proposed 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, in the proposal, the Board 
indicated that 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 solicited comment on whether these exemptions 
should be retained. For example, the Board solicited 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 solicited 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.
    In response to the October 2009 Regulation Z Proposal, several 
consumer groups supported the Board's proposal not to include these two 
exemptions to the repayment disclosure requirements. On the other hand, 
several industry commenters indicated that with respect to these fixed 
repayment plans, consumers are quite sensitive to the repayment term 
and have selected the specific repayment term for each balance. These 
commenters suggest that in this context the proposed repayment 
disclosures are neither relevant nor helpful, and may be confusing if 
they tend to suggest that the selected repayment term is no longer 
available.
    The final rule does not contain these two exemptions related to 
fixed repayment periods. As discussed above, when a fixed repayment 
period is set forth in the account agreement, the estimate of how long 
it would take to repay the outstanding balance if only minimum payments 
are made does not appear to provide additional information to consumers 
that they do not already have in their account agreements. Nonetheless, 
consumers would not know from the account agreements 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, that is required to be disclosed on the periodic 
statement under the Credit Card Act. The Board believes this additional 
information would be helpful to consumers in managing their accounts, 
even for consumers that have previously selected the fixed repayment 
period that applies to the account. For example, assume the fixed 
repayment period set forth in the account agreement is 5 years. On the 
periodic statement, the consumer would be informed of the total cost of 
repaying the outstanding balance in 5 years, compared with the monthly 
payment and the total cost of repaying the outstanding balance in 3 
years. In this example, this additional information on the periodic 
statement could be helpful to the consumer in deciding whether to repay 
the balance earlier than in 5 years.
    2. Accounts in bankruptcy. In response to the October 2009 
Regulation Z Proposal, one commenter requested that the Board include 
in the final rule an exemption from the repayment disclosures set forth 
in Sec.  226.7(b)(12) in connection with sending monthly

[[Page 7690]]

periodic statements or informational statements to customers who have 
filed for bankruptcy. This commenter indicated that it is possible that 
a debtor's attorney could argue that including the disclosures, such as 
the minimum payment warning and the minimum payment repayment estimate, 
on a monthly bankruptcy informational statement is an attempt to 
collect a debt in violation of the automatic stay imposed by Section 
362 of the Bankruptcy Code or the permanent discharge injunction 
imposed under Section 524 of the Bankruptcy Code.
    The Board does not believe that an exemption from the requirement 
to provide the repayment disclosures with respect to accounts in 
bankruptcy is needed. The Board notes that under Sec.  226.5(b)(2), a 
creditor is not required to send a periodic statement under Regulation 
Z if delinquency collection proceedings have been instituted. Thus, if 
a consumer files for bankruptcy, creditors are not longer required to 
provide periodic statements to that consumer under Regulation Z. A 
creditor could continue to send periodic statements to consumers that 
have filed for bankruptcy (if permitted by law) without including the 
repayment disclosures on the periodic statements, because those 
periodic statements would not be required under Regulation Z and would 
not need to comply with the requirements of Sec.  226.7.
    3. Charged-off accounts. In response to the October 2009 Regulation 
Z Proposal, one industry commenter requested that the Board include in 
the final rule an exemption from the repayment disclosures for charged 
off accounts where consumers are 180 days late, the accounts have been 
placed in charge-off status and full payment is due immediately. The 
Board does not believe that a specific exemption is needed for charged-
off accounts because charged-off accounts would be exempted from the 
repayment disclosures under another exemption. As discussed above, the 
final rule contains an exemption under which a card issuer is not 
required to provide 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. Comment 7(b)(12)-1 clarifies that this exemption would 
apply to a charged-off account where payment of the entire account 
balance is due immediately.
    4. Lines of credit accessed solely by account numbers. In response 
to the October 2009 Regulation Z Proposal, one commenter requested that 
the Board provide an exemption from the repayment disclosures for lines 
of credit accessed solely by account numbers. This commenter believed 
that this exemption would simplify compliance issues, especially for 
smaller retailers offering in-house revolving open-end accounts, in 
view of some case law indicating that a reusable account number could 
constitute a ``credit card.'' The final rule does not contain a 
specific exemption for lines of credit accessed solely by account 
numbers. The Board believes that consumers that use these lines of 
credit (to the extent they are considered credit card account) would 
benefit from the repayment disclosures.
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 proposed in 
October 2009 to retain these format requirements, with several 
revisions. Proposed Sample G-18(D) in Appendix G to part 226 would have 
illustrated the proposed requirements.
    Due date and late payment disclosures. As discussed above under the 
section-by-section analysis to 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, in the October 2009 Regulation Z Proposal, the Board proposed 
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 
have been 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 final rule retains these 
formatting requirements, as proposed. 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 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) provided 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.

[[Page 7691]]

The final rule retains these formatting requirements, as proposed. The 
Board believes that these 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, 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.
    In the October 2009 Regulation Z Proposal, the Board proposed 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 
Sec.  226.7(b)(12) for a discussion of these new format requirements. 
The final rule adopts Sample G-18(D), G-18(F) and G-18(G) as proposed. 
In addition, as proposed, the final rule deletes Sample G-18(E) (which 
applies to non-credit card accounts) as unnecessary. The formatting 
requirements in 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 Sec.  226.2(a)(15)(ii).
7(b)(14) Deferred Interest or Similar Transactions
    In the October 2009 Regulation Z Proposal, the Board republished 
provisions and amendments related to periodic statement disclosures for 
deferred interest or similar transactions that were initially proposed 
in the May 2009 Regulation Z Proposed Clarifications. These included 
proposed revisions to comment 7(b)-1 and Sample G-18(H) as well as a 
proposed new Sec.  226.7(b)(14). In addition, a related cross-reference 
in comment 5(b)(2)(ii)-1 was proposed to be updated.
    Specifically, the Board proposed to revise 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. 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. 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 to require that the language 
used to make the disclosure under Sec.  226.7(b)(14) be substantially 
similar to Sample G-18(H).
    In general, commenters supported the Board's proposals to require 
certain periodic statement disclosures for deferred interest and other 
similar programs. Some industry commenters requested that the Board 
clarify that programs in which a consumer is not charged interest, 
whether or not the consumer pays the balance in full by a certain time, 
are not deferred interest programs that are subject to these periodic 
statement disclosures. One industry commenter also noted that the Board 
already proposed such clarification with respect to the advertising 
requirements for deferred interest and other similar programs. See 
proposed comment 16(h)-1. Accordingly, the Board has amended comment 
7(b)-1 to reference the definition of ``deferred interest'' in Sec.  
226.16(h)(2) and associated commentary. The Board has also made 
technical amendments to comment 7(b)-1 to be consistent with the 
requirement in Sec.  226.55(b)(1) that a promotional or other temporary 
rate program that expires after a specified period of time (including a 
deferred interest or similar program) last for at least six months.
    Some consumer group and industry commenters also suggested 
amendments to the model language in Sample G-18(H). In particular, 
consumer group commenters suggested that language be added to clarify 
that minimum payments will not pay off the deferred interest balance. 
Industry commenters suggested that additional language may clarify for 
consumers how much they should pay in order to avoid finance charges 
when there are other balances on the account in addition to the 
deferred interest balance. The Board believes that the language in 
Sample G-18(H) sufficiently conveys the idea that in order to avoid 
interest charges on the deferred interest balance, consumers must pay 
such balance in full. While the additional language recommended by 
commenters may provide further information to consumers that may be 
helpful, each of the clauses suggested by commenters would not 
necessarily apply to all consumers in all situations. Therefore, the 
Board is opting not to include such clauses in Sample G-18(H). The 
Board notes, however, that the regulation does not prohibit creditors 
from providing these additional disclosures. Indeed, the Board 
encourages any additional disclosure that may be useful to consumers in 
avoiding finance charges. In response to these comments, however, the 
Board is amending Sec.  226.7(b)(14) to require that language used to 
make the disclosure be similar, instead of substantially similar, to 
Sample G-18(H) in order to provide creditors with some flexibility.
    Proposed Sec.  226.7(b)(14) required the warning language only for 
the last two billing cycles preceding the billing cycle in which the 
deferred interest period ends. Consumer group commenters recommended 
that the disclosure be required on each periodic statement during the 
deferred interest period. Since Sec.  226.53(b) permits issuers to 
allow consumers to request that payments in excess of the minimum 
payment be allocated to deferred interest balances any time during the 
deferred interest period, as discussed below, the Board believes that 
the disclosure required under Sec.  226.7(b)(14) would be beneficial 
for consumers to see on each periodic statement issued during the 
deferred interest period from the time the deferred interest or similar 
transaction is reflected on a periodic statement. Section 226.7(b)(14) 
and comment 7(b)-1 have been amended accordingly.

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 adopting several changes to Sec.  
226.9(c)(2) and the associated staff commentary in order to conform to 
the new requirements of the Credit Card Act.

[[Page 7692]]

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. In order to clarify that the October 2009 Regulation Z 
Proposal was not intended to amend or otherwise affect the August 2009 
Regulation Z HELOC Proposal, the Board did not republish Sec.  
226.9(c)(1) in October 2009.
    However, this final rule is being issued prior to completion of 
final rules regarding HELOCs. Therefore, the Board has incorporated 
Sec.  226.9(c)(1), as adopted in the January 2009 Regulation Z Rule, in 
this final rule, 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 \27\
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    \27\ 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.
---------------------------------------------------------------------------

    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.
    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 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 implementing 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 is implementing in 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 is 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 implementing 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 
retaining those requirements of the January 2009 Regulation Z Rule that 
are not directly affected by the Credit Card Act concurrently with the 
promulgation of regulations implementing the provisions of the Credit 
Card Act effective February 22, 2010.\28\ Consistent with this 
approach, the Board has used 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. Section 
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 adopting a revised version of Sec.  226.9(c)(2) of the January 2009

[[Page 7693]]

Regulation Z Rule, with several amendments necessary to conform to the 
new Credit Card Act. This supplementary information focuses on 
highlighting those aspects in which Sec.  226.9(c)(2) as adopted in 
this final rule differs from Sec.  226.9(c)(2) of the January 2009 
Regulation Z Rule.
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    \28\ 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 
requiring a tabular format for certain change-in-terms notice 
requirements before the July 1, 2010 mandatory compliance date.
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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 
adopting 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 226.9(c)(2) sets forth the change-in-terms notice 
requirements for open-end consumer credit plans that are not home-
secured. Section 226.9(c)(2)(i) as proposed in October 2009 stated 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. As noted in 
the supplementary information to the proposal, this rule was intended 
to be substantively equivalent to Sec.  226.9(c)(2) of the January 2009 
Regulation Z Rule. The Board proposed to set forth the exceptions to 
this general rule in proposed paragraph (c)(2)(v). In addition, 
proposed (c)(2)(iii) provided 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). Section 226.9(c)(2)(iii), which is discussed in more 
detail elsewhere 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) set 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. First, as proposed, the 45-day advance notice requirement would 
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)(i) also noted 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.
    Proposed Sec.  226.9(c)(2) applied to all open-end (not home-
secured) credit, consistent with the January 2009 Regulation Z Rule. 
TILA Section 127(i), 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 under an open-end (not 
home-secured) consumer credit plan. However, the advance notice 
requirements adopted by the Board in January 2009 apply to all open-end 
(not home-secured) credit. For consistency with the January 2009 
Regulation Z Rule, the proposal accordingly would have applied Sec.  
226.9(c)(2) to all open-end (not home-secured) credit. The final rule 
adopts this approach, which is consistent with the approach the Board 
adopted in the January 2009 Regulation Z Rule. 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 under an open-end (not home-secured) consumer credit plan. As 
discussed in more detail in the supplementary information to Sec.  
226.9(c)(2)(iv), the regulation applies such requirements only to 
credit card accounts under an open-end (not home-secured) consumer 
credit plan.
    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, as adopted in the January 2009 
Regulation Z Rule, 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 the May 2009 Regulation 
Z Proposed Clarifications, 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 
proposed example stated 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.
    Commenters on the October 2009 Regulation Z Proposal and the May 
2009 Regulation Z Proposed Clarifications 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 addressed these concerns in comment 5(b)(1)(i)-
6, discussed above. The Board also believes 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, the Board continues to believe that 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. For these reasons, the Board 
is adopting the substantive guidance in proposed 9(c)(2)(i)-3. However, 
for clarity, the Board has moved this guidance into a new Sec.  
226.9(c)(2)(i)(B) of the regulation rather than including it in the 
commentary. Comment 9(c)(2)(i)-3, as adopted, contains a cross-
reference to comment 5(b)(1)(i)-6.
    The Board received a number of additional comments on Sec.  
226.9(c)(2), as are discussed below in further detail. However, the 
Board received no comments on the general approach in Sec.  
226.9(c)(2)(i), which is substantively equivalent to the rule the Board 
adopted in January 2009. Therefore, the Board is adopting Sec.  
226.9(c)(2)(i) generally as proposed (redesignated as Sec.  
226.9(c)(2)(i)(A)), with one technical amendment to correct a 
scrivener's error in the proposal.

[[Page 7694]]

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 
proposed Sec.  226.9(c)(2)(ii) to identify which changes are 
significant changes in terms. Similar to the January 2009 Regulation Z 
Rule, proposed Sec.  226.9(c)(2)(ii) stated 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) or an increase in the required 
minimum periodic payment. 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) in the proposal. However, 
proposed Sec.  226.9(c)(2)(ii) was 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.
    Industry commenters generally were supportive of the Board's 
proposed definition of ``significant change in account terms.'' These 
commenters believed that the Board's proposed definition provided 
necessary clarity to creditors in determining for which changes 45 
days' advance notice is required, and that it properly focused on 
changes in those terms that are the most important to consumers.
    Consumer group commenters stated that the Board's proposed 
definition of ``significant change in account terms'' was overly 
restrictive, and that 45 days' advance notice should also be required 
for other types of fees and changes in terms. These commenters 
specifically noted the addition of security interests or a binding 
mandatory arbitration provision as changes for which advance notice 
should be required. In addition, they stated that fees should be 
permitted to be disclosed orally and immediately prior to their 
imposition only if they are fees or one-time or time-sensitive 
services. Consumer groups noted their concerns that the Board's list of 
``significant changes in account terms'' could lead creditors to 
establish new types of fees that for which 45 days' advance disclosure 
would not be required.
    The Board is adopting Sec.  226.9(c)(2)(ii) generally as proposed. 
The Board continues to believe, based on its consumer testing, that the 
list of fees, categories of fees, and other terms required to be 
disclosed in a tabular format at account-opening includes those terms 
that are the most important to consumers. The Board notes that 
consumers will receive notice of any other types of charges imposed as 
part of the plan prior to their imposition, as required by Sec.  
226.5(b)(1)(ii). The Board also believes that TILA Section 127(i) does 
not require 45 days' advance notice for all changes in terms, because 
the statute specifically mentions ``significant change[s],'' and thus 
by its terms does not apply to all changes.
    However, in response to consumer group comments, the Board has 
added the acquisition of a security interest to the list of significant 
changes for which 45 days' advance notice is required. The Board 
believes that if a creditor acquires or will acquire a security 
interest that was not previously disclosed under Sec.  226.6(b)(5), 
this constitutes a change of which a consumer should be aware in 
advance. A consumer may wish to use a different form of financing or to 
otherwise adjust his or her use of the open-end plan in consideration 
of such a security interest. Under the final rule, a consumer will 
receive 45 days' advance notice of this change.
    The Board is not adopting a requirement that creditors provide 45 
days' advance notice of the addition of, or changes in the terms of, a 
mandatory arbitration clause. TILA does not address or require 
disclosures regarding arbitration for open-end credit plans, and 
Regulation Z's rules applicable to open-end credit have accordingly 
never addressed arbitration. Furthermore, the Board's regulations 
generally do not address the remedies for violations of Regulation Z 
and TILA; rather, the procedures and remedies for violations are 
addressed in the statute. Accordingly, the Board does not believe it is 
appropriate at this time to require disclosures regarding mandatory 
arbitration clauses under Regulation Z.
9(c)(2)(iii) Charges Not Covered by Sec.  226.6(b)(1) and (b)(2)
    Proposed Sec.  226.9(c)(2)(iii) set 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 described 
in Sec.  226.9(c)(2)(ii). The Board proposed a 45-day notice period 
only 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 required 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.
    One consumer group commenter stated that if the 45-day advance 
notice requirement does not apply to all undisclosed charges, the Board 
should require written disclosures of all charges not required to be 
disclosed in the account-opening table. The Board is not adopting a 
requirement that notices given pursuant to Sec.  226.9(c)(2)(iii) be in 
writing. The Board believes that oral disclosure of certain charges on 
a consumer's open-end (not home-secured) account may, in some 
circumstances, be more beneficial to a consumer than a written 
disclosure, because the oral disclosure can be provided at the time 
that the consumer is considering purchasing an incidental service from 
the creditor that has an associated charge. In such a case, it would 
unnecessarily delay the consumer's access to that service to require 
that a written disclosure be provided.
    For the reasons discussed above and in the supplementary 
information to Sec.  226.9(c)(2)(ii), the Board is adopting Sec.  
226.9(c)(2)(iii) as proposed. The Board continues to believe that there 
are some fees, such as fees for expedited delivery of a replacement 
card, that it may not be useful to disclose long in advance of when 
they become relevant to the consumer. For such fees, the Board believes 
that a more flexible approach, consistent with that adopted in the 
January 2009 Regulation Z Rule and the July 2009 Regulation Z Interim 
Final Rule is appropriate. Thus, if a consumer calls to request an 
expedited replacement card, the consumer could be informed of the 
amount of the fee in the telephone call in which the consumer requests 
the card. Otherwise, the consumer would have to wait 45 days from 
receipt of a change-in-terms

[[Page 7695]]

notice to be able to order an expedited replacement card, which would 
likely negate the benefit to the consumer of receiving the expedited 
delivery service.
9(c)(2)(iv) Disclosure Requirements
General Content Requirements
    Proposed Sec.  226.9(c)(2)(iv) set forth the Board's proposed 
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) 
required such notices 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.
    Proposed Sec.  226.9(c)(2)(iv)(A) generally mirrored the content 
required under Sec.  226.9(c)(2)(iii) of the January 2009 Regulation Z 
Rule, except that the Board proposed 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 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 believed 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.
    The Board received few comments on Sec.  226.9(c)(2)(iv)(A), and it 
is generally adopted as proposed, except that Sec.  
226.9(c)(2)(iv)(A)(1) has been amended to refer to security interests 
being acquired by the creditor, for consistency with Sec.  
226.9(c)(2)(ii). The Board is amending comment 9(c)(2)(i)-5, regarding 
the form of a change in terms notice required for an additional 
security interest. The comment notes that a creditor must provide a 
description of the change consistent with Sec.  226.9(c)(2)(iv), but 
that it may use a copy of the security agreement as the change-in-terms 
notice. The Board also has made a technical amendment to Sec.  
226.9(c)(2)(iv)(A)(1) to note that a description, rather than a 
summary, of any increase in the required minimum periodic payment be 
disclosed.
    Several commenters noted that proposed Sample G-20, which sets 
forth a sample disclosure for an annual percentage rate increase for a 
credit card account, erroneously included a reference to the consumer's 
right to opt out of the change, which is not required by proposed Sec.  
226.9(c)(2)(iv)(A)(3) for credit card accounts. The reference to opt-
out rights has been deleted from Sample G-20 in the final rule.
    Consumer groups commented that notices provided in connection with 
rate increases should set forth the current rate as well as the 
increased rate that will apply. For the reasons discussed in the 
supplementary information to the January 2009 Regulation Z Rule, the 
Board is not adopting a requirement that a change-in-terms notice set 
forth the current rate or rates. See 74 FR 5244, 5347. As noted in that 
rulemaking, the main purpose of the change-in-terms notice is to inform 
consumers of the new rates that will apply to their accounts. The Board 
is concerned that disclosure of each current rate in the change-in-
terms notice could contribute to information overload, particularly in 
light of new restrictions on repricing in Sec.  226.55, which may lead 
to a consumer's account having multiple protected balances to which 
different rates apply.
    One exception to the repricing rules set forth in Sec.  
226.55(b)(3) permits card issuers to increase the rate on new 
transactions for a credit card account under an open-end (not home-
secured) consumer credit plan, provided that the creditor complies with 
the notice requirements in Sec.  226.9(b), (c), or (g). Under this 
exception, the increased rate can apply only to transactions that 
occurred more than 14 days after provision of the applicable notice. 
One federal banking agency suggested that Sec.  226.9(c) should 
expressly repeat the 14-day requirement and reference the advance 
notice exception set forth in Sec.  226.55(b)(3), so that issuers do 
not have to cross-reference two sections in providing the notice 
required under Sec.  226.9(c)(2). The Board believes that including an 
express reference to the 14-day requirement from Sec.  226.55(b)(3) in 
Sec.  226.9(c)(2) is not necessary. The Board expects that card issuers 
will be familiar with the substantive requirements regarding rate 
increases set forth in Sec.  226.55(b)(3), and that a second detailed 
reference to those requirements in Sec.  226.9(c)(2) therefore would be 
redundant.
Additional Content Requirements for Credit Card Accounts
    Proposed Sec.  226.9(c)(2)(iv)(B) set 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), the proposal required credit card issuers making 
significant changes to terms to disclose certain information regarding 
the consumer's right to reject the change pursuant to 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, the proposal provided that 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. Proposed section 226.9(c)(2)(iv)(B) 
generally mirrored requirements made applicable

[[Page 7696]]

to credit card issuers in the July 2009 Regulation Z Interim Final 
Rule.
    The Board did not receive any significant comments on the content 
of disclosures regarding a consumer's right to reject certain 
significant changes to their account terms. Therefore, the content 
requirements in Sec.  226.9(c)(2)(iv)(B)(1)-(3) are adopted as 
proposed.
    The proposal provided that the right to reject does not apply 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 Board is 
adopting the exceptions to the right to reject as proposed, with one 
change. For the reasons discussed in the supplementary information to 
Sec.  226.9(h), the proposed exception for increases in annual 
percentage rates has been adopted as an exception for all changes in 
annual percentage rates.
Rate Increases Resulting From Delinquency of More Than 60 Days
    As discussed in the supplementary information to Sec.  226.9(g), 
TILA Section 171(b)(4) requires several additional disclosures to be 
provided when the annual percentage rate applicable to a credit card 
account under an open-end consumer credit plan is increased 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. The Board proposed in Sec.  226.9(g)(3)(i)(B) to set forth 
this additional content for rate increases pursuant to the exercise of 
a penalty pricing provision in the contract; however, the proposal 
contained no analogous disclosure requirements in Sec.  226.9(c)(2) 
when the rate increase is made pursuant to a change in terms notice. 
One issuer commented that Sec.  226.9(c)(2) also should set forth 
guidance for disclosing the 6-month cure right when a rate is increased 
via a change-in-terms notice due to a delinquency of more than 60 days. 
The final rule adopts new Sec.  226.9(c)(2)(iv)(C), which implements 
the notice requirements contained in amended TILA Section 171(b)(4), as 
adopted by the Credit Card Act; the substantive requirements of TILA 
Section 171(b)(4) are discussed in proposed Sec.  226.55(b)(4), as 
discussed below.
    New Sec.  226.9(c)(2)(iv)(C) requires the notice regarding the 6-
month cure right to be provided if the change-in-terms notice is 
disclosing 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) based on the consumer's failure to make a minimum periodic 
payment within 60 days from the due date for that payment. This differs 
from Sec.  226.9(g)(3)(i)(B), in that it references fees of a type 
required to be disclosed under Sec.  226.6(b)(2)(ii), (b)(2)(iii), or 
(b)(2)(xii). Section 226.9(c)(2) addresses changes in fees and interest 
rates, while Sec.  226.9(g) applies only to interest rates; therefore, 
the reference to fees in Sec.  226.9(c)(2)(iv)(C) has been included for 
conformity with the substantive requirements of Sec.  226.55. The 
notice is required to state the reason for the increase and 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.
    Several industry commenters noted that the model forms for the 
table required to be provided at account opening disclose a cure right 
that is more advantageous to the consumer than the cure required by 
Sec.  226.55. In particular, proposed Samples G-17(B) and G-17(C) state 
that a penalty rate will apply until the consumer makes six consecutive 
minimum payments when due. In contrast, the substantive right under 
Sec.  226.55 applies only if the consumer makes the first six 
consecutive required minimum periodic payments when due, following the 
effective date of a rate increase due to the consumer's failure to make 
a required minimum periodic payment within 60 days of the due date. The 
Board is adopting the disclosure of penalty rates in Samples G-17(B) 
and G-17(C) as proposed. The Board notes that Samples G-17(B) and G-
17(C) set forth two examples of how the disclosures required by Sec.  
226.6(b)(1) and (b)(2) can be made, and those samples can be adjusted 
as applicable to reflect a creditor's actual practices regarding 
penalty rates. A creditor is still free, under the final rule, to 
provide that the penalty APR will cease to apply if the consumer makes 
any six consecutive payments on time, although the substantive right in 
Sec.  226.55 does not compel a creditor to do so. The Board does not 
wish to discourage creditors from providing more advantageous penalty 
pricing triggers than those that are required by the Credit Card Act 
and Sec.  226.55.
Formatting Requirements
    Proposed Sec.  226.9(c)(2)(iv)(C) set 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 were 
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 included, 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 proposed to adopt them generally as adopted in January 2009. The 
Board received no significant comment on the formatting requirements, 
and Sec.  226.9(c)(2)(iv)(D) (renumbered from proposed Sec.  
226.9(c)(2)(iv)(C)) is adopted as proposed.
    As proposed, the Board is amending Sample G-20 and adding a new 
Sample G-21 to illustrate how a card issuer may comply with the 
requirements of Sec.  226.9(c)(2)(iv). The Board is amending references 
to these samples in Sec.  226.9(c)(2)(iv) and comment 9(c)(2)(iv)-8 
accordingly. 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 proposed 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, proposed Sec.  
226.9(c)(2)(v) was intended to be substantively equivalent to Sec.  
226.9(c)(2)(v) of the July 2009 Regulation Z Interim Final Rule, except 
that the Board proposed an additional express exception for the 
extension of a grace period. Proposed Sec.  226.9(c)(2)(v)(A) set forth 
several exceptions that are in current Sec.  226.9(c), including 
charges for documentary

[[Page 7697]]

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 did not include these 
changes in the set of ``significant changes'' giving rise to notice 
requirements pursuant to new TILA Section 127(i)(2). The Board stated 
that it believes 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.
    The Board received several comments on the exceptions in proposed 
Sec.  226.9(c)(2)(v)(A) for termination of an account or plan and the 
suspension of future credit privileges. Consumer groups stated that 
notice should be required of credit limit decreases or account 
termination, either contemporaneously with or subsequent to those 
actions. In addition, one member of Congress stated that 45 days' 
advance notice should be required prior to account termination.
    The Board is retaining the exceptions for account termination and 
suspension of credit privileges in the final rule. As stated in the 
proposal, 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. With regard 
to the suspension of credit privileges, the Board notes that Sec.  
226.9(c)(vi) requires creditors to provide 45 days' advance notice that 
a consumer's credit limit has been decreased before an over-the-limit 
fee or penalty rate can be imposed solely for exceeding that newly 
decreased credit limit. The Board believes that Sec.  226.9(c)(vi) will 
adequately ensure that consumers receive notice of a decrease in their 
credit limit prior to any adverse consequences as a result of the 
consumer exceeding the new credit limit.
    Similarly, the Board does not believe that it is necessary to 
require notices of the termination of an account or the suspension of 
credit privileges contemporaneously with or immediately following such 
a termination or suspension. In many cases, consumers will receive 
subsequent notification of the termination of an account or the 
suspension of credit privileges pursuant to Regulation B. See 12 CFR 
part 202. The Board acknowledges that Regulation B does not require 
subsequent notification of the termination of an account or suspension 
of credit privileges in all cases, for example, when the action affects 
all or substantially all of a class of the creditor's accounts or is an 
action relating to an account taken in connection with inactivity, 
default, or delinquency as to that account. However, the Board believes 
that the benefit to consumers of requiring such a subsequent notice in 
all cases would be limited. If a consumer's account is terminated or 
suspended and the consumer attempts to use the account for new 
transactions, those transactions will be denied. The Board expects that 
in such circumstances most consumers would call the card issuer and be 
notified at that time of the suspension or termination of their 
account.
Increase in Annual Percentage Rate Upon Expiration of Specified Period 
of Time
    Proposed Sec.  226.9(c)(2)(v)(B) set 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. The proposal 
required that this disclosure 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 proposed exception generally mirrored the statutory language, 
except for two additional requirements. First, the Board's proposal 
provided, 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 proposed 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 
the disclosure of the rate that applies during the specified period of 
time. 15 U.S.C. 1604(a). The Board stated that it believes both of 
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 clarified 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 stated 
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 mirrored 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 received a large number of comments from retailers and 
private label card issuers raising concerns about the proposal and 
regarding the operational difficulties associated with providing the 
disclosures required by proposed Sec.  226.9(c)(2)(v)(B). Specifically, 
these commenters stated that issuers should be permitted to provide 
consumers with a disclosure of an ``up to'' annual percentage rate, and

[[Page 7698]]

not the specific rate that will apply to a consumer's account upon 
expiration of the promotion. The Board is not adopting this suggestion, 
for several reasons. First, the Board believes that the appropriate 
interpretation is that amended TILA Section 127(i)(1) (which cross-
references new TILA Section 171(a)(1)) requires disclosure of the 
actual rate that will apply upon expiration of a temporary rate. 
Second, the Board believes that a disclosure of a range of rates or 
``up to'' rate will not be as useful for consumers as a disclosure of 
the specific rate that will apply. The Board is aware that some private 
label card issuers and retailers permit consumers to make transactions 
at a promotional rate, even if the consumer's account is currently 
subject to a penalty rate. In this case, an ``up to'' rate disclosure 
would disclose the penalty rate, which would be much higher than the 
actual rate that will apply upon expiration of the promotion for most 
consumers. Thus, the disclosure would convey little useful information 
to a consumer whose account is not subject to the penalty rate.
    Other retailers and private label card issuers suggested that the 
Board permit issuers to provide the required disclosures or a portion 
of the required disclosures with a receipt or other document. One such 
commenter stated that these disclosures should be permitted to be given 
at the conclusion of a transaction. The Board believes that amended 
TILA Section 127(i)(1) (which cross-references new TILA Section 
171(a)(1)) clearly contemplates that the disclosures will be provided 
prior to commencement of the period during which the temporary rate 
will be in effect. Therefore, the final rule would not permit a 
creditor to provide the disclosures after conclusion of a transaction 
at point of sale.
    However, the Board believes that it is appropriate to provide some 
flexibility for the formatting of notices of temporary rates provided 
at point of sale. The Board understands that private label and retail 
card issuers may offer different rates to different consumers based on 
their creditworthiness and other factors. In addition, some consumers' 
accounts may be at a penalty rate that differs from the standard rates 
on the portfolio. Commenters have indicated that there can be 
significant operational issues associated with ensuring that sales 
associates provide the correct disclosures to each consumer at point of 
sale when those consumers' rates vary. In order to address an analogous 
issue for the disclosures required to be given at account opening, the 
Board understands that card issuers disclose the rate that will apply 
to the consumer's account on a separate page which can be printed 
directly from the receipt terminal, as permitted by Sec.  
226.6(b)(2)(i)(E). The Board believes that a similar formatting rule is 
appropriate for disclosures of temporary rate offers. Accordingly, the 
Board is adopting a new comment 9(c)(2)(v)-7 which states that card 
issuers providing the disclosures required by Sec.  226.9(c)(2)(v)(B) 
in person in connection with financing the purchase of goods or 
services may, at the creditor's option, disclose the annual percentage 
rate that would apply after expiration of the period on a separate page 
or document from the temporary rate and the length of the period, 
provided that the disclosure of the annual percentage rate that would 
apply after the expiration of the period is equally prominent to, and 
is provided at the same time as, the disclosure of the temporary rate 
and length of the period. The Board believes that this will ensure that 
consumers receive the disclosures required for a temporary rate offer, 
and will be aware of the rate that will apply after the temporary rate 
expires, while alleviating burden on retail and private label credit 
card issuers.
    One industry commenter urged the Board to provide flexibility in 
the formatting of the promotional rate disclosures under Sec.  
226.9(c)(2)(v)(B), noting that any requirement that these disclosures 
be presented in a tabular format would present significant operational 
challenges. The Board notes that the proposal did not require that 
these disclosures be provided in a tabular format, and the final rule 
similarly does not require that the disclosures under Sec.  
226.9(c)(2)(v)(B) be presented in a table.
    In the October 2009 Regulation Z Proposal, the Board stated, 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 could disclose a range of rates or an 
``up to'' rate rather than a single rate. The Board noted that stating 
a range of rates or ``up to'' rate would only be permissible for a 
brief transition period and that it expected that merchants and 
creditors would 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 expects that all 
issuers will disclose a single rate by the February 22, 2010 effective 
date of this final rule. The Board notes that in addition to the 
exception to Sec.  226.9(c)(2)'s advance notice requirements, provision 
of the notice pursuant to Sec.  226.9(c)(2)(v)(B) now also is a 
condition of an exception to the substantive repricing rules in Sec.  
226.55(b)(1). Accordingly, the Board believes that it is particularly 
important that consumers receive notice of the specific rate that will 
apply upon expiration of a promotion, since the ability to raise the 
rate upon termination of the program is conditioned on the consumer's 
receipt of that disclosure.
    Several industry commenters stated that the alternative timing rule 
for telephone purchases in proposed comment 9(c)(2)(v)-5 should apply 
to all telephone offers of temporary rate reductions. These commenters 
argued that consumers should not have to wait for written disclosures 
to be delivered prior to commencement of a temporary reduced rate, 
because that rate constitutes a beneficial change to the consumer. 
Several of these commenters indicated that a consumer who accepts a 
temporary rate offer by telephone should have a subsequent right to 
reject the offer for 45 days after provision of the written 
disclosures.
    In response to these comments, the Board is adopting a revised 
comment 9(c)(2)(v)-5, which provides 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: (i) The consumer accepts the offer of the temporary 
rate by telephone; (ii) the creditor permits the consumer to reject the 
temporary rate offer and have the rate or rates that previously applied 
to the consumer's balances reinstated for 45 days after the creditor 
mails or delivers the written disclosures required by Sec.  
226.9(c)(2)(v)(B); and (iii) the disclosures required by Sec.  
226.9(c)(2)(v)(B) and the consumer's right to reject the offer and have 
the rate or rates that previously applied to the consumer's account 
reinstated are disclosed to the consumer as part of the temporary rate 
offer. The Board believes that consumers who accept a promotional rate 
offer by telephone expect that the promotional rate will apply 
immediately upon their acceptance. The Board believes that requiring 
written disclosures prior to commencement of a temporary rate when 
offer is made by telephone and the required disclosures are provided 
orally would unnecessarily delay, in many cases, a benefit to the 
consumer. However, the Board believes that a consumer should have a 
right,

[[Page 7699]]

subsequent to receiving written disclosures, to change his or her mind 
and reject the temporary rate offer. The Board believes that comment 
9(c)(2)(v)-5, as adopted, ensures that consumers may take immediate 
advantage of promotions that they believe to be a benefit, while 
protecting consumers by allowing them to terminate the promotion, with 
no adverse consequences, upon receipt of written disclosures.
    In addition to requesting that the disclosures under Sec.  
226.9(c)(2)(v)(B) be permitted to be provided by telephone, other 
industry commenters stated that these disclosures should be permitted 
to be provided electronically without regard to 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 
Board is not providing an exception to the consumer consent 
requirements under the E-Sign Act at this time. The requirements of the 
E-Sign Act are implemented in Regulation Z in Sec.  226.36, which 
states that a creditor is required to obtain a consumer's affirmative 
consent when providing disclosures related to a transaction. The Board 
believes that disclosure of a promotional or other temporary rate is a 
disclosure related to a transaction, and that consumers should only 
receive the disclosures under Sec.  226.9(c)(2)(v)(B) electronically if 
they have affirmatively consented to receive disclosures in that form.
    Several commenters asked the Board to provide additional 
clarification regarding the proposed requirement that the disclosures 
of the length of the period and the rate that will apply after the 
expiration of the period be disclosed in close proximity and equal 
prominence to the disclosure of the temporary rate. One card issuer 
indicated that the Board should require only that the disclosures 
required by Sec.  226.9(c)(2)(v)(B) be provided in close proximity and 
equal prominence to the first listing of the promotional rate, 
analogous to what Sec.  226.16(g) requires for disclosures of 
promotional rates in advertisements. The Board believes that this 
clarification is appropriate, and is adopting a new comment 9(c)(2)(v)-
6, which states that the disclosures of the rate that will apply after 
expiration of the period and the length of the period are only required 
to be provided in close proximity and equal prominence to the first 
listing of the temporary rate in the disclosures provided to the 
consumer. The comment further states that for purposes of Sec.  
226.9(c)(2)(v)(B), the first statement of the temporary rate is the 
most prominent listing on the front side of the first page of the 
disclosure. The comment notes that if the temporary rate does not 
appear on the front side of the first page of the disclosure, then the 
first listing of the temporary rate is the most prominent listing of 
the temporary rate on the subsequent pages of the disclosure. The Board 
believes that this rule will ensure that consumers notice the 
disclosure of the rate that will apply after the temporary rate 
expires, by requiring that it be closely proximate and equally 
prominent to the most prominent disclosure of the temporary rate, while 
mitigating burden on issuers to present this disclosure multiple times 
in the materials provided to the consumer.
    One industry commenter stated that there should be an exception 
analogous to Sec.  226.9(c)(2)(v)(B) for promotional fee offerings. The 
Board is not adopting such an exception at this time. The Board notes 
that the exception in amended TILA Section 127(i)(1) (which cross-
references new TILA Section 171(a)(1)) refers only to annual percentage 
rates and not to fees. The Board does not think a similar exception for 
fees is appropriate or necessary. Fees generally do not apply to a 
specific balance on the consumer's account, but rather, apply 
prospectively. Therefore, a creditor could reduce a fee pursuant to the 
exception in Sec.  226.9(c)(2)(v) for reductions in finance or other 
charges, without having to provide advance notice of that reduction. 
The creditor could then increase the fee with prospective application 
after providing 45 days' advance notice pursuant to Sec.  226.9(c). 
Nothing in the rule prohibits a creditor from providing notice of the 
increase in a fee at the same time it temporarily reduces the fee; a 
creditor could provide information regarding the temporary reduction in 
the same notice, provided that it is not interspersed with the content 
required to be disclosed pursuant to Sec.  226.9(c)(2)(iv).
    The Board proposed to retain 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 proposed comment also provides examples of how the required 
disclosures can be made for deferred interest or similar programs. The 
Board did not receive any significant comment on the applicability of 
Sec.  226.9(c)(2)(v)(B) to deferred interest plans, and 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. The Board 
is adopting proposed comment 9(c)(2)(v)-7 (redesignated as comment 
9(c)(2)(v)-9), in order to ensure that the final rule does not have 
unintended adverse consequences for deferred interest promotions. In 
order to ensure consistent treatment of deferred interest programs, the 
Board has added a cross-reference to comment 9(c)(2)(v)-9 indicating 
that for purposes of Sec.  226.9(c)(2)(v)(B) and comment 9(c)(2)(v)-9, 
``deferred interest'' has the same meaning as in Sec.  226.16(h)(2) and 
associated commentary.
    In October 2009, the Board proposed 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. The Board 
received no comments on proposed comment 9(c)(2)(v)-6 and it is adopted 
as redesignated comment 9(c)(2)(v)-8.
Increases in Variable Rates
    The Board proposed Sec.  226.9(c)(2)(v)(C) to implement an 
exception 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 proposed a minor amendment 
to the text of Sec.  226.9(c)(2)(v)(C) as adopted in the July 2009 
Regulation Z Interim Final Rule 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

[[Page 7700]]

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 proposed to retain Sec.  
226.9(c)(2)(v)(C) of the July 2009 Regulation Z Interim Final Rule.
    The Board received no significant comment on Sec.  
226.9(c)(2)(v)(C), which is adopted as proposed. The Board notes that, 
as discussed in the supplementary information to Sec.  226.55(b)(2), it 
is adopting additional commentary clarifying when an index is deemed to 
be outside of an issuer's control, in order to address certain 
practices regarding variable rate ``floors'' and the adjustment or 
resetting of variable rates to account for changes in the index. The 
Board is adopting a new comment 9(c)(2)(v)-11, which cross-references 
the guidance in comment 55(b)(2)-2.
Exception for Workout or Temporary Hardship Arrangements
    In the October 2009 Regulation Z Proposal, the Board proposed to 
retain Sec.  226.9(c)(2)(v)(D) to implement a statutory exception in 
amended TILA Section 127(i)(1) (which cross-references new TILA Section 
171(b)(3)), 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. Proposed Sec.  226.9(c)(2)(v)(D) was substantively 
equivalent to the analogous provision included in the July 2009 
Regulation Z Interim Final Rule.
    The exception in proposed Sec.  226.9(c)(2)(v)(D) applied both to 
completion of or failure to comply with a workout arrangement. The 
proposed exception was 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 of, or failure to comply with, the terms 
of such a workout or temporary hardship arrangement. This proposed 
exception generally mirrored the statutory language, except that the 
Board proposed to require that the disclosures regarding the workout or 
temporary hardship arrangement be in writing.
    The Board also proposed 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 stated 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 proposed 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 proposal also required the notice to 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 noted its belief 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.
    Several industry commenters stated that creditors should be 
permitted to provide the disclosures pursuant to Sec.  
226.9(c)(2)(v)(D) for workout or temporary hardship arrangements orally 
with subsequent written confirmation. These commenters noted that oral 
disclosure of the terms of a workout arrangement would permit creditors 
to reduce rates and fees as soon as the consumer agrees to the 
arrangement, but that a requirement that written disclosures be 
provided in advance could unnecessarily delay commencement of the 
arrangement. These commenters noted that workout arrangements 
unequivocally benefit consumers, so there is no consumer protection 
rationale for delaying relief until a creditor can provide written 
disclosures. Commenters further noted that the consumers who enter such 
arrangements are having trouble making the payments on their accounts, 
and that any delay can be detrimental to the consumer.
    The Board notes that amended TILA Section 127(i) (which cross-
references TILA Section 171(b)(3)) requires clear and conspicuous 
disclosure of the terms of a workout or temporary hardship arrangement 
prior to its commencement, but the statute does not contain an express 
requirement that these disclosures be in writing. The Board further 
understands that a delay in commencement of a workout or temporary 
hardship arrangement can have adverse consequences for a consumer. 
Therefore, Sec.  226.9(c)(2)(v)(D) of the final rule provides that 
creditors may provide the disclosure of the terms of the workout or 
temporary hardship arrangement orally by telephone, provided that the 
creditor mails or delivers a written disclosure of the terms of the 
arrangement to the consumer as soon as reasonably practicable after the 
oral disclosure is provided. The Board notes that a consumer's rate can 
only be raised, upon completion or failure to comply with the terms of, 
a workout or temporary hardship arrangement, to the rate that applied 
prior to commencement of the arrangement. Therefore, the Board believes 
that consumers will be adequately protected by receiving written 
disclosures as soon as practicable after oral disclosures are provided.
    In addition to requesting that the disclosures under Sec.  
226.9(c)(2)(v)(D) be permitted to be provided by telephone, other 
industry commenters stated that these disclosures should be permitted 
to be provided electronically without regard to 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 
Board is not providing an exception to the consumer consent 
requirements under the E-Sign Act at this time. The Board believes that 
disclosure of the terms of a workout or other temporary hardship 
arrangement is a disclosure related to a transaction, and that 
consumers should only receive the disclosures under Sec.  
226.9(c)(2)(v)(D) electronically if they have affirmatively consented 
to receive disclosures in that form.
    Several industry commenters requested that the Board extend the 
exception in Sec.  226.9(c)(2)(v)(D) to address the reduction of the 
consumer's minimum periodic payment as part of a workout or temporary 
hardship arrangement. The Board understands that a requirement that 45 
days' advance notice be given prior to reinstating the prior minimum 
payment requirements could lead to negative amortization for a period 
of 45 days or more, when the consumer's rate or rates are increased as 
a result of the completion of or failure to comply with the terms of, 
the

[[Page 7701]]

workout or temporary hardship arrangement. Therefore, the Board has 
amended Sec.  226.9(c)(2)(v)(D) and comment 9(c)(2)(v)-10 (proposed as 
comment 9(c)(2)(v)-8) to provide that increases in the required minimum 
periodic payment are covered by the exception in Sec.  
226.9(c)(2)(v)(D), but that such increases in the minimum payment must 
be disclosed as part of the terms of the workout or temporary hardship 
arrangement. As with rate increases, a consumer's required minimum 
periodic payment can only be increased to the required minimum periodic 
payment prior to commencement of the workout or temporary hardship 
arrangement in order to qualify for the exception.
    One industry commenter asked the Board to simplify the content 
requirements for the notice required to be given prior to commencement 
of a workout or temporary hardship arrangement. The issuer stated that 
the notice could be confusing for consumers because they may have 
different annual percentage rates applicable to different categories of 
transactions, promotional rates in effect, and protected balances under 
Sec.  226.55. While the Board acknowledges that the disclosure of the 
various annual percentage rates applicable to a consumer's account 
could be complex, the Board believes that a consumer should be aware of 
all of the annual percentage rates and fees that would be applicable 
upon completion of, or failure to comply with, the workout or temporary 
hardship arrangement. Therefore, the Board is adopting comment 
9(c)(2)(v)-10 (proposed as comment 9(c)(2)(v)-8) generally as proposed, 
except for the addition of a reference to changes in the required 
minimum periodic payment, discussed above.
Additional Exceptions
    A number of commenters urged the Board to adopt additional 
exceptions to the requirement to provide 45 days' advance notice of 
significant changes in account terms. Several industry commenters 
stated that the Board should provide an exception to the advance notice 
requirements for rate increases made when the provisions of the 
Servicemembers Civil Relief Act (SCRA), 50 U.S.C. app. 501 et seq., 
which in some circumstances requires reductions in consumers' interest 
rates when they are engaged in military service, cease to apply. These 
commenters noted that proposed Sec.  226.55 provided an exception to 
the substantive repricing requirements in these circumstances. However, 
the Board is not adopting an analogous exception to the notice 
requirements in Sec.  226.9. The Board believes that consumers formerly 
engaged in military service should receive advance notice when a higher 
rate will begin to apply to their accounts. A consumer may not be aware 
of exactly when the SCRA's protections cease to apply and may choose, 
in reliance on the notice, to change his or her account usage or 
utilize another source of financing in order to mitigate the impact of 
the rate increase.
    One industry trade association requested an exception to the 45-day 
advance notice requirement for termination of a preferential rate for 
employees. The Board notes that it expressly removed such an exception 
historically set forth in comment 9(c)-1 in the January 2009 Regulation 
Z Rule. For the reasons discussed in the supplementary information to 
the January 2009 Regulation Z Rule, the Board is not restoring that 
exception in this final rule. See 74 FR 5244, 5346.
    Finally, one industry commenter requested an exception to the 
advance notice requirements when a change in terms is favorable to a 
consumer, such as the extension of a grace period, even if it does not 
involve a reduction in a finance charge. The commenter noted that, for 
such changes, an issuer also may not want to provide a right to reject 
under Sec.  226.9(h), because rejecting the change would be unfavorable 
to the consumer. While the Board notes that, consistent with the 
proposal, the final rule creates an exception to the advance notice 
requirements for extensions of the grace period, the Board is not 
adopting a more general exception to the advance notice requirements 
for favorable changes at this time. With the exception of reductions in 
finance or other charges, the Board believes that it is difficult to 
articulate criteria for when other types of changes are beneficial to a 
consumer.
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 proposed 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 did not propose 
to include 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 stated its belief 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.
    The Board received no significant comment on Sec.  226.9(c)(2)(vi), 
which is adopted as proposed. The Board notes that consumer group 
commenters stated that the final rule should also require disclosure of 
a credit line decrease either contemporaneously with the decrease or 
shortly thereafter; for the reasons discussed above in the section-by-
section analysis to Sec.  226.9(c)(2)(v), the Board is not adopting 
such a requirement at this time.
    The Board notes that the final rule contains additional protections 
against a credit line decrease. First, Sec.  226.55 prohibits a card 
issuer from applying an increased rate, fee, or charge to an existing 
balance as a result of transactions that exceeded the credit limit. In 
addition, Sec.  226.56 allows a card issuer to charge a fee for 
transactions that exceed the credit limit only when the consumer has 
consented to such transactions.
Additional 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 adopting several new 
comments to Sec.  226.9(c)(2)(v) and has renumbered the remaining 
commentary accordingly.
    In October 2009, the Board proposed 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

[[Page 7702]]

Sec.  226.55, the Credit Card Act moved the substantive rule regarding 
rate increases into Regulation Z, the Board believed that it is not 
necessary to repeat the examples under Sec.  226.9. The Board received 
no comments on the proposed amendments to comment 9(c)(2)(i)-6, which 
are adopted as proposed.
    The Board also proposed 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), (C) (if applicable), and (D). 
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.
Relationship Between Sec.  226.9(c)(2) and (b)
    In the October 2009 Regulation Z Proposal, the Board republished 
proposed amendments to Sec.  226.9(c)(2)(v) and comments 9(c)(2)-4 and 
9(c)(2)(i)-3 that were part of the May 2009 Regulation Z Proposed 
Clarifications. Several of the Board's proposed 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 were to clarify 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. Commenters that addressed this aspect of the proposal 
generally supported these proposed clarifications, which are adopted as 
proposed.
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 
has historically required 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.

Alternative Delayed Notice

    The Credit Card Act amended TILA Section 127(d) to eliminate the 
provision permitting creditors to provide an alternative delayed 
notice. Thus, the statute requires card issuers 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. Card issuers 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 
proposed to delete Sec.  226.9(e)(2) and to renumber Sec.  226.9(e)(3) 
as Sec.  226.9(e)(2). The Board proposed 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).
    Consumer groups commented that the Board's final rule should permit 
the alternative delayed disclosure. These commenters believe that the 
deletion of TILA Section 127(d)(2) was a drafting error, and that the 
Board should use its authority under TILA Section 105(a) to restore the 
alternative delayed notice procedure. These commenters stated that 
restoring Sec.  226.9(e)(2) would benefit both consumers and issuers, 
because consumers are in their opinion more likely to notice the fee 
and exercise their right to cancel the card if the fee appears on the 
periodic statement.
    The Board believes that the language of Section 203 of the Credit 
Card Act, which amended TILA Section 127(d), clearly deletes the 
statutory basis for the alternative delayed notice. Therefore, the 
Board does not believe that use of its TILA Section 105(a) authority is 
appropriate at this time to override this express statutory provision. 
The final rule deletes Sec.  226.9(e)(2) and renumbers Sec.  
226.9(e)(3) as Sec.  226.9(e)(2), as proposed. Similarly, the Board is 
adopting the 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), as proposed.

Terms Amended Since Last Renewal

    As amended by the Credit Card Act, 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 an annual fee, periodic fee, or other fee for renewal of the 
credit or charge card account. The Board proposed to implement amended 
TILA Section 127(d) by making corresponding amendments to Sec.  
226.9(e)(1). Proposed Sec.  226.9(e)(1) stated, 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 proposed 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

[[Page 7703]]

required to be disclosed in the table provided at account opening.
    Several industry commenters stated that renewal disclosures should 
be required only if an annual or other renewal fee is assessed on a 
consumer's account. However, the Credit Card Act specifically amended 
TILA Section 127(d) to require renewal disclosures when creditors have 
changed or amended terms of the account since the last renewal that 
have not been previously disclosed. The Board therefore believes that a 
rule requiring renewal disclosures to be given only if an annual or 
other renewal fee is charged would not effectuate the statutory 
amendment.
    Consumer groups stated that renewal disclosures should be required 
if any undisclosed change has been made to the account terms since the 
last renewal, not only if undisclosed changes have been made to terms 
required to be disclosed pursuant to Sec.  226.6(b)(1) and (b)(2). 
Consumer groups argued that the language ``any term of the account'' in 
amended TILA Section 127(d) contemplates that renewal disclosures will 
be given if any term has been changed and not previously disclosed, 
regardless of the type of term. As discussed in the supplementary 
information to the proposal, the Board considered an interpretation of 
amended TILA Section 127(d), consistent with consumer group comments, 
that would have required that the renewal disclosures be provided for 
all changes in account terms that have not been previously disclosed, 
including 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. 
The Board noted that it believes providing a renewal notice in these 
circumstances would not provide a meaningful benefit to consumers.
    The Board also noted that under such an interpretation, the renewal 
notice would in many cases not disclose the changed term, which would 
render it of little value 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). Therefore, if a card issuer changed a charge imposed 
as part of an open-end (not home-secured) plan but had not previously 
disclosed that change, a consumer would receive disclosure prior to 
imposition of the charge.
    For these reasons, the Board is adopting Sec.  226.9(e)(1) as 
proposed. The Board believes that Sec.  226.9(e)(1) as adopted strikes 
the appropriate balance between ensuring that consumers receive notice 
of important changes to their account terms that have not been 
previously disclosed and avoiding burden on issuers with little or no 
corresponding benefit to consumers. 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 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.
    One industry commenter requested that the Board clarify that 
disclosing a change in terms on a periodic statement is sufficient to 
constitute prior disclosure of that change for purposes of Sec.  
226.9(e). The Board believes that this generally is appropriate, and 
has adopted a new comment 9(e)-10 . Comment 9(e)-10 states that clear 
and conspicuous disclosure of a changed term on a periodic statement 
provided to a consumer prior to renewal of the consumer's account 
constitutes prior disclosure of that term for purposes of Sec.  
226.9(e)(1). The comment contains a cross-reference to Sec.  
226.9(c)(2) for additional timing, content, and formatting requirements 
that apply to certain changes in terms under that paragraph.
    Consumer group commenters urged the Board to require that renewal 
disclosures be tabular, prominently located, and retainable. The Board 
is not imposing such a requirement at this time. The Board believes 
that the general requirements of Sec.  226.5(a), which require that 
renewal disclosures be clear and conspicuous and in writing, are 
sufficient to ensure that renewal disclosures are noticeable to 
consumers.
    Section 226.9(e)(1), consistent with the proposal, further 
clarifies 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 proposed 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), implemented 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

[[Page 7704]]

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). Proposed Sec.  
226.9(g)(1) set forth the general rule and stated 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. The Board received no significant comment on the general 
rule in Sec.  226.9(g)(1), which is adopted as proposed.
9(g)(2) Timing of Written Notice
    Proposed paragraph (g)(2) set forth the timing requirements for the 
notice described in paragraph (g)(1), and stated 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. The Board received no significant comment on Sec.  
226.9(g)(2), which is adopted as proposed.
9(g)(3) Disclosure Requirements for Rate Increases
    Proposed paragraph (g)(3) set forth the content and formatting 
requirements for notices provided pursuant to Sec.  226.9(g). Proposed 
Sec.  226.9(g)(3)(i)(A) set 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 proposed a separate Sec.  226.9(g)(3)(i)(B) that contained 
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) provided 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) set 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 
proposal required that the notice 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) 
implemented 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) would not have 
required disclose the consumer's right to reject the application of the 
penalty rate. For the reasons discussed in the supplementary 
information to Sec.  226.9(h), the Board is not providing a right to 
reject penalty rate increases in light of the new substantive rule on 
rate increases in proposed Sec.  226.55. Accordingly, the proposal 
would not have required disclosure of a right to reject for penalty 
rate increases.
    Proposed paragraph (g)(3)(ii) set forth the formatting requirements 
for a rate increase due to default, delinquency, or as a penalty. These 
requirements were 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 
retaining the original July 1, 2010 effective date of the January 2009 
Regulation Z Rule for the tabular formatting requirements.
    The Board proposed 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 proposal would have amended 
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.
    One industry commenter stated that Sec.  226.9(g)(3) and Model Form 
G-23 should be revised to more accurately reflect the balances to which 
the consumer's cure right applies, when the consumer's rate is 
increased due to a delinquency of greater than 60 days. As discussed in 
the supplementary information to Sec.  226.55(b)(4)(ii), the rule 
requires only that the rate be reduced on transactions that occurred 
prior to or within 14 days of the notice provided pursuant to Sec.  
226.9(c) or (g), when the consumer makes the first six required minimum 
periodic payments on time following the effective date of a rate 
increase due to a delinquency of more than 60 days. The Board believes 
that consumers could be confused by a notice, as proposed, that states 
only that the rate increase will cease to apply if the consumer, but 
does not distinguish between outstanding balances and new transactions. 
Accordingly, the Board has revised Sec.  226.9(g)(3)(i)(B)(2) to 
require disclosure that the increase will cease to apply with respect 
to transactions that occurred prior to or within 14 days of provision 
of the notice, 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. The Board has made a conforming change to Model Form G-23.

[[Page 7705]]

    The Board received no other significant comment on the disclosure 
requirements in Sec.  226.9(g)(3) and is otherwise is adopting Sec.  
226.9(g)(3) as proposed.
9(g)(4) Exceptions
    Proposed Sec.  226.9(g)(4) set 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) 
clarified 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 proposed exception 
implemented 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. The Board received no comments on this 
exception, which is adopted as proposed.
    As discussed in the supplementary information to the October 2009 
Regulation Z Proposal, 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 noted in the supplementary information to the proposal 
that one respect in which proposed Sec.  226.9(g)(4) differs from the 
January 2009 Regulation Z Rule is that it did 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.
    Industry commenters urged the Board to provide an exception that 
would permit creditors to send a notice disclosing a rate increase 
applicable to both a consumer's outstanding balances and new 
transactions, prior to the consumer's account becoming more than 60 
days delinquent. These commenters stated that, as proposed, the rule 
would require issuers to wait at least 105 days prior to imposing rate 
increases as a result of the consumer paying more than 60 days late. 
These commenters also stated that a notice disclosing the consequences 
that would occur if a consumer paid more than 60 days late would give 
the consumer the opportunity to avoid the rate increase.
    The Board is not adopting an exception that would permit a creditor 
to send a notice disclosing a rate increase applicable to both a 
consumer's outstanding balances and new transactions, prior to the 
consumer's failure to make a minimum payment within 60 days of the due 
date for that payment. As discussed in the supplementary information to 
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.
    The Board believes that many creditors will impose rate increases 
applicable to new transactions for consumers who make late payments 
that are 60 or fewer days late. For notices of such rate increases 
provided pursuant to Sec.  226.9(g), Sec.  226.9(g)(3)(i)(A)(5) 
requires that the notice describe the balances to which the current 
rate will continue to apply unless the consumer fails to make a minimum 
periodic payment within 60 days of the due date for that payment. The 
Board believes that this will result in consumers receiving a notice of 
the consequences of paying more than 60 days late and, thus, will give 
consumers an opportunity to avoid a rate increase applicable to 
outstanding balances.
    In addition, the Board notes that the Credit Card Act, as 
implemented in 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 has amended 
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

[[Page 7706]]

Regulation Z, the Board believes that it is not necessary to repeat the 
examples under Sec.  226.9.
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 provided 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 final rule--goes into effect on February 22, 2010. 
Accordingly, because the Board is now implementing revised TILA Section 
171 in Sec.  226.55, the Board has modified 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 has amended 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 and Sec.  226.55. 
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).
    Industry commenters strongly opposed the Board's establishment of a 
right to reject in the July 2009 Regulation Z Interim Final Rule but 
supported the revisions in the October 2009 Regulation Z Proposal. 
Consumer group commenters took the opposite position. In particular, 
along with a federal banking regulator, consumer group commenters 
argued that the Board should interpret the ``right to cancel'' in 
revised TILA Section 127(i)(3) as providing consumers with the right to 
reject increases in rates that apply to new transactions. However, the 
Board does not believe this interpretation would be consistent with the 
Credit Card Act's provisions regarding rate increases. As discussed in 
detail below with respect to Sec.  226.55, the Credit Card Act 
generally prohibits card issuers from applying increased rates to 
existing balances while generally permitting card issuers to increase 
the rates that apply to new transactions after providing 45 days' 
advance notice. Furthermore, by prohibiting card issuers from applying 
an increased rate to transactions that occur during a 14-day period 
following provision of the notice of the increase, the Credit Card Act 
ensures that consumers can generally avoid application of increased 
rates to new transactions by ceasing to use their accounts after 
receiving the notice of the increase.
    Accordingly, the final rule removes 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 was based on revised 
TILA Section 171(d),\29\ that exception has been removed from Sec.  
226.9(h) and incorporated into Sec.  226.55. Finally, the Board has 
redesignated comment 9(h)(3)-1 as comment 9(h)-1 and amended it to 
clarify that Sec.  226.9(h) does not apply to increases in an annual 
percentage rate.
---------------------------------------------------------------------------

    \29\ See 74 FR 36089-36090.
---------------------------------------------------------------------------

    As noted above, the Board has also revised Sec.  226.9(c)(2)(iv)(B) 
to clarify that the right to reject does not apply to changes in an 
annual percentage rate that do not result in an immediate increase in 
rate (such as changes in the method used to calculate a variable rate 
or conversion of a variable rate to an equivalent fixed rate). As 
discussed below, consistent with the requirements in the Credit Card 
Act, Sec.  226.55 generally prohibits a card issuer from applying any 
change in an annual percentage rate to an existing balance if that 
change could result in an increase in rate. See commentary to Sec.  
226.55(b)(2). However, because the Credit Card Act generally permits 
card issuers to change the rates that apply to new transactions, it 
would be inconsistent with the Act to apply the right to reject to such 
changes. Nevertheless, as with rate increases that apply to new 
transactions, the consumer will receive 45 days' advance notice of the 
change and thus can decide whether to continue using the account.
    Industry and consumer group commenters also requested that the 
Board add or remove several exceptions to the right to reject. However, 
the Board does not believe that further revisions are warranted at this 
time. In particular, industry commenters argued that the right to 
reject should not apply when the consumer has consented to the change 
in terms, when the change is unambiguously in the consumer's favor, or 
in similar circumstances. As discussed elsewhere in this final rule, 
the Board believes that it would be difficult to develop workable 
standards for determining when a change has been requested by the 
consumer (rather than suggested by the issuer), when a change is 
unambiguously beneficial to the consumer, and so forth. Furthermore, an 
exception to the right to reject generally should not be necessary if 
the consumer has actually requested a change or if a change is clearly 
advantageous to the consumer.
    Industry commenters also argued that the Board should exempt 
increases in fees from the right to reject if the fee is increased to a 
pre-disclosed amount after a specified period of time, similar to the 
exception for temporary rates in Sec.  226.9(c)(2)(v)(B). However, as 
discussed above, Sec.  226.9(c)(2)(v)(B) implements revised TILA 
Section 171(b)(1), which applies only to increases in annual percentage 
rates. The fact that the exceptions in Section 171(b)(3) and (b)(4) 
expressly apply to increases in rates and fees indicates that Congress 
intentionally excluded fees

[[Page 7707]]

from Section 171(b)(1). Accordingly, the Board does not believe it 
would be appropriate to exclude increases in fees from the right to 
reject.
    Consumer groups argued that the Board should remove the exception 
in Sec.  226.9(h)(3) for accounts that are more than 60 days' 
delinquent. However, this exception is based on revised TILA Section 
171(b)(4), which provides that the Credit Card Act's limitations on 
rate increases do not apply when an account is more than 60 days' past 
due. Accordingly, the Board believes that it is consistent with the 
intent of the Credit Card Act to provide card issuers with greater 
flexibility to adjust the account terms in these circumstances.
    Consumer groups also argued that the Board should remove the 
exception in Sec.  226.9(c)(2)(iv) for increases in the required 
minimum periodic payment. However, the Board believes that, as a 
general matter, increases in the required minimum payment can be 
advantageous for consumers insofar as they can increase repayment of 
the outstanding balance, which can reduce the cost of borrowing. 
Indeed, although the Credit Card Act limits issuers' ability to 
accelerate repayment in circumstances where the issuer cannot apply an 
increased rate to an existing balance (revised TILA Section 171(c)), 
the Act also encourages consumers to increase the repayment of credit 
card balances by requiring card issuers to disclose on the periodic 
statement the costs associated with making only the minimum payment 
(revised TILA Section 127(b)(11)). Furthermore, although consumer 
groups argued that card issuers could raise minimum payments to 
unaffordable levels in order to force accounts to become more than 60 
days' past due (which would allow issuers to apply increased rates to 
existing balances), it seems unlikely that it would be in card issuers' 
interests to do so, given the high loss rates associated with accounts 
that become more than 60 days' delinquent.\30\ Thus, the Board does not 
believe application of the right to reject to increases in the minimum 
payment is warranted at this time.
---------------------------------------------------------------------------

    \30\ For example, data submitted to the Board during the comment 
period for the January 2009 FTC Act Rule indicated that 
approximately half of all accounts that become two billing cycles' 
past due (which is roughly equivalent to 60 days' delinquent) charge 
off during the subsequent twelve months. See Federal Reserve Board 
Docket No. R-1314: Exhibit 5, Table 1a to Comment from Oliver I. 
Ireland, Morrison Foerster LLP (Aug 7, 2008) (Argus Analysis) 
(presenting results of analysis by Argus Information & Advisory 
Services, LLC of historical data for consumer credit card accounts 
believed to represent approximately 70% of all outstanding consumer 
credit card balances).
---------------------------------------------------------------------------

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 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.  226.9(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.
    The Board did not receive significant comment on this aspect of the 
proposal. Accordingly, the final rule moves the provisions and 
commentary regarding repayment to Sec.  226.55(c)(2) and amends Sec.  
226.9(h)(2)(iii) to include a cross-reference to Sec.  226.55(c)(2).
    Furthermore, the Board has amended 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 clarifies 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 has been revised to clarify the 
meaning of ``the balance on the account'' that is subject to the 
repayment restrictions in 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 
clarifies 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 revisions discussed above, the Board has made 
non-substantive, technical amendments to the commentary to Sec.  
226.9(h). In addition, for organizational reasons, the Board has 
renumbered comments 9(h)(2)(ii)-1 and -2. Finally, the Board has 
amended 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 clarifies 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. In October 
2009, the Board proposed 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

[[Page 7708]]

payments, but more generally to the conditions that may be imposed upon 
payments. Accordingly, the Board proposed to amend the title of Sec.  
226.10 to ``Payments'' to more accurately reflect the content of 
amended Sec.  226.10. The Board received no comments on this change, 
which is adopted as proposed.
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 two 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.
    In the October 2009 Regulation Z Proposal, the Board proposed to 
implement amended TILA Section 164 in a revised Sec.  226.10(b)(2)(ii). 
Proposed Sec.  226.10(b)(2)(ii) 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, 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. The Board is adopting Sec.  226.10(b)(2)(ii) 
generally as proposed.
    Consistent with the January 2009 Regulation Z Rule, proposed Sec.  
226.10(b)(2)(ii) referred to the time zone of the location specified by 
the creditor for the receipt of payments. The Board believed that this 
clarification was 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 noted 
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 solicited 
comment on whether this clarification is appropriate for payments made 
by methods other than mail.
    Consumer group commenters indicated that the cut-off time rule for 
electronic and telephone payments should refer to the consumer's time 
zone. These commenters believe that it is unfair for consumers to be 
penalized for making what they believe to be a timely payment based on 
their own time zone. In contrast, industry commenters stated that it is 
appropriate for the 5 p.m. cut-off time to be determined by reference 
to the time zone of the location specified for making payments, 
including for payments by means other than mail. These commenters 
specifically noted the operational burden that would be associated with 
a rule requiring a creditor to process payments differently based on 
the time zone of the consumer.
    The final rule, consistent with the proposal, refers to the time 
zone of the location specified by the creditor for making payments. The 
Board believes that the benefit to consumers of a rule that refers to 
the time zone of the consumer's billing address would not outweigh the 
operational burden to creditors. As amended by the Credit Card Act, 
TILA contains a number of protections, including new periodic statement 
mailing requirements for credit card accounts implemented in Sec.  
226.5(b)(2)(ii), to ensure that consumers receive a sufficient period 
of time to make payments. The Board also notes that there may be 
consumers who are United States residents, such that Regulation Z would 
apply pursuant to comment 1(c)-1, but who have billing addresses that 
are outside of the United States. Thus, if the rule referred to the 
time zone of the consumer's billing address, a creditor might need to 
have many different payment processing procedures, including procedures 
for time zones outside of the United States.
    Section 226.10(b)(2)(ii), consistent with the proposal, generally 
applies 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 is implementing in a 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. 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 are 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 thus is adopting a 
reference in Sec.  226.10(b)(2)(ii) 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).

[[Page 7709]]

    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, Sec.  226.10(b)(2)(ii), consistent 
with the proposal, applies to all open-end credit. This is consistent 
with current Sec.  226.10, which applies to all open-end credit.
Other Requirements for Conforming Payments
    One industry commenter asked the Board to clarify that an issuer 
can specify a single address for receiving conforming payments. The 
Board notes that Sec.  226.10(b)(2)(v) provides ``[s]pecifying one 
particular address for receiving payments'' such as a post office box'' 
as an example of a reasonable requirement for payments. Accordingly, 
the Board believes that no additional clarification is necessary. 
However, a creditor that specifies a single address for the receipt of 
conforming payments is still subject to the general requirement in 
Sec.  226.10(b) that the requirement enable most consumers to make 
conforming payments.
    The commenter further urged the Board to adopt a clarification to 
comment 10(b)-2, which states that if a creditor promotes electronic 
payment via its Web site, any payments made via the creditor's Web site 
are generally conforming payments for purposes of Sec.  226.10(b). The 
commenter asked the Board to clarify that a creditor may set a cut-off 
time for payments via its Web site, consistent with the general rule in 
Sec.  226.10(b). The Board agrees that this clarification is 
appropriate and has included a reference to the creditor's cut-off time 
in comment 10(b)-2.
    Finally, the Board is adopting a technical revision to Sec.  
226.10(b)(4), which addresses nonconforming payments. Section 
226.10(b)(4) states that 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. The Board has amended Sec.  226.10(b)(4) to clarify that a 
creditor may only specify such requirements as are permitted under 
Sec.  226.10. For example, a creditor may not specify requirements for 
making payments that would be unreasonable under Sec.  226.10(b)(2), 
such as a cut-off time for mailed payments of 4:00 p.m., and treat 
payments received by mail between 4:00 p.m. and 5:00 p.m. as non-
conforming payments.
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 proposed 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).
    Proposed Sec.  226.10(b)(3)(i) stated 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 
proposal further provided 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) interpreted 
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.
    Several industry commenters stated that the Board should clarify 
the relationship between Sec.  226.10(b)(3) and the general rule in 
Sec.  226.10(b)(2) regarding cut-off times. These commenters indicated 
that it was unclear whether the Board intended to require that bank 
branches remain open until 5 p.m. if a card issuer accepts in-person 
payments at a branch location. The Board did not intend to require 
branches or offices of financial institutions to remain open until 5 
p.m. if in-person credit card payments are accepted at that location. 
The Board believes that such a rule might discourage financial 
institutions from accepting in-person payments, to the detriment of 
consumers. The Board therefore is adopting Sec.  226.10(b)(3)(i) 
generally as proposed, but has clarified that, notwithstanding Sec.  
226.10(b)(2)(ii), a card issuer may impose a cut-off time earlier than 
5 p.m. for payments on a credit card account under an open-end (not 
home-secured) consumer credit plan made in person at a branch or office 
of a card issuer that is a financial institution, if the close of 
business of the branch or office is earlier than 5 p.m. For example, if 
a branch or office of the card issuer closes at 3 p.m., the card issuer 
must treat in-person payments received at that branch prior to 3 p.m. 
as received on that date.
    Several industry commenters stated that a card issuer should not be 
required to treat an in-person payment received at a branch or office 
as conforming, if the issuer does not promote payment at the branch. 
The Board believes that TILA Section 127(b)(12)(C) requires all card 
issuers that are financial institutions that accept payments in person 
at a branch or office to treat those payments as received on the date 
on which the consumer makes the payment. The Credit Card Act does not 
distinguish between circumstances where a card issuer promotes in-
person payments at branches and circumstances where a card issuer 
accepts, but does not promote, such payments. The Board believes that 
the intent of TILA Section 127(b)(12)(C) is to require in-person 
payments to be treated as received on the same day, which is consistent 
with consumer expectations. Accordingly, Sec.  226.10(b)(3) does not 
distinguish between financial institutions that promote in-person 
payments at a branch and financial institutions that accept, but do not 
promote, such payments.
    Neither the Credit Card Act nor TILA defines ``financial 
institution.'' In order to give clarity to card issuers, the Board 
proposed 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) stated that ``financial institution'' 
has the same meaning as ``depository institution'' as defined in the 
Federal Deposit Insurance Act (12 U.S.C. 1813(c)).
    Industry commenters noted that the Board's proposed definition of 
``financial institution'' excluded credit unions. Consumer groups 
stated that a broader definition of ``financial institution'' including 
entities other than depository institutions, such as retail locations 
that accept payments on store credit cards for that retailer, would be

[[Page 7710]]

appropriate in light of consumer expectations. The Board has revised 
Sec.  226.10(b)(3)(ii) in the final rule to cover credit unions, 
because omission of credit unions in the proposal was an unintentional 
oversight. Section 226.10(b)(3)(ii) of the final rule states that a 
``financial institution'' means a bank, savings association, or credit 
union. The Board believes that a broader definition of ``financial 
institution'' that includes non-depository institutions, such as retail 
locations, would not be appropriate, because the primary business of 
such entities is not the provision of financial services. The Board 
believes that the statute's reference to ``financial institutions'' 
contemplates that not all card issuers will be covered by this rule. 
The Board believes that the definition it is adopting effectuates the 
purposes of amended TILA Section 127(b)(12) by including all banks, 
savings associations, and credit unions, while excluding entities such 
as retailers that should not be considered ``financial institutions'' 
for purposes of proposed Sec.  226.10(b)(3).
    In October, 2009, the Board proposed 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 stated 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).
    One industry commenter commented in support of proposed comment 
10(b)-5, but asked that it be expanded to cover co-branded cards in 
addition to private label credit cards. This commenter pointed out that 
as proposed, comment 10(b)-5 applied only to private label credit 
cards, but the Board's supplementary information referenced co-branded 
credit cards. Consumer groups indicated that they believe proposed 
comment 10(b)-5 is contrary to consumer expectations. These commenters 
further stated that if a bank branch must credit payments as of the 
date of in-person payment, consumers will come to expect and assume 
that retail locations that accept credit card payments should do the 
same. The Board is adopting comment 10(b)-5 generally as proposed, but 
has expanded the comment to address co-branded credit cards. 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. TILA Section 127(b)(12) is limited to branches or offices of 
a card issuer that is a financial institution, and accordingly the 
Board believes that the statute was not intended to address other types 
of locations where an in-person payment on a credit card account may be 
accepted.
    Finally, the Board also proposed 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. The Board received no 
significant comment on proposed comment 10(b)-6, and it is adopted as 
proposed.
    One issuer asked the Board to clarify that in-person payments made 
at a branch or location of a card issuer's affiliate should not be 
treated as conforming payments, even if the affiliate shares the same 
logo or trademark as the card issuer. The Board understands that for 
many large financial institutions, the card issuing entity may be a 
separate legal entity from the affiliated depository institution or 
other affiliated entity. In such cases, the card issuing entity is not 
likely to have branches or offices at which a consumer can make a 
payment, while the affiliated depository institution or other 
affiliated entity may have such branches or offices. Therefore, as a 
practical matter, in many cases a consumer will only be able to make 
in-person payments on his or her credit card account at an affiliate of 
the card issuer, not at a branch of the card issuer itself. The Board 
believes that in such cases, it may not be apparent to consumers that 
they are in fact making payment at a legal entity different than their 
card issuer, especially when the affiliates share a logo or have 
similar names. Therefore, the Board believes that the clarification 
requested by the commenter is inappropriate. The Board is adopting a 
new comment 10(b)-7 which states that if an affiliate of a card issuer 
that is a financial institution shares a name with the card issuer, 
such as ``ABC,'' and accepts in-person payments on the card issuer's 
credit card accounts, those payments are subject to the requirements of 
Sec.  226.10(b)(3).
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 proposed 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 proposed, however, to provide that if the 
creditor accepts or receives payments made by a method

[[Page 7711]]

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 proposed this clarification using its 
authority under TILA Section 105(a) to make adjustments necessary to 
effectuate the purposes of TILA. 15 U.S.C. 1604(a).
    Consumer group commenters stated that electronic and telephone 
payments should not be exempted from the rule for payments made on a 
due date which is a day on which the creditor does not receive or 
accept payments by mail. The Board notes that proposed Sec.  226.10(d) 
did not create a general exemption for electronic or telephone 
payments, except when the creditor receives or accepts payments by 
those methods on a day on which it does not accept payments by mail. 
Under these circumstances, Sec.  226.10(d) requires a creditor to 
credit a conforming electronic or telephone payment as of the day of 
receipt, and accordingly the fact that the creditor does not accept 
mailed payments on that day does not result in any detriment to a 
consumer who makes his or her payment electronically or by telephone.
    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. For these reasons, the Board is adopting Sec.  226.10(d) as 
proposed, except that the Board has restructured the paragraph for 
clarity.
    An industry trade association asked the Board to clarify that Sec.  
226.10(d), which prohibits the treatment of a payment as late for any 
purpose, does not prohibit charging interest for the period between the 
due date on which the creditor does not accept payments by mail and the 
following business day. The Board believes, consistent with the 
approach it took in Sec.  226.5(b)(2)(ii), that charging interest for 
the period between the due date and the following business day does not 
constitute treating a payment as late for any purpose, unless the delay 
results in the loss of a grace period. Accordingly, the Board is 
adopting new comment 10(d)-2, which cross-references the guidance on 
``treating a payment as late for any purpose'' in comment 5(b)(2)(ii)-
2. The comment also expressly states that 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.
    One industry commenter asked the Board to clarify the operation of 
Sec.  226.10(d) if a holiday on which an issuer does not accept 
payments is on a Friday, but the bank does accept payments by mail on 
the following Saturday. The Board believes that in this case, Saturday 
is the next business day for purposes of Sec.  226.10(d). Accordingly, 
the Board has included a statement in Sec.  226.10(d)(1) indicating 
that for the purposes of Sec.  226.10(d), the ``next business day'' 
means the next day on which the creditor accepts or receives payments 
by mail.
    Another industry commenter stated that the rule should provide that 
if a creditor receives multiple mail deliveries on the next business 
day following a due date on which it does not accept mailed payments, 
only payments in the first delivery should be required to be treated as 
timely. The Board believes that such a comment would not be 
appropriate, because if the creditor received or accepted mailed 
payments on the due date, payments in every mail delivery on that day 
would be timely, not just those payments received in the first mail 
delivery. The Board believes that consumers should accordingly have a 
full business day after a due date on which the creditor does not 
accept payments by mail in order to make a timely payment.
    Finally, as proposed, amended Sec.  226.10(d) applies 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 
received no comments on the applicability of Sec.  226.10(d) to open-
end credit plans that are not 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). In the October 2009 Regulation Z 
Proposal, the Board proposed to implement TILA Section 127(l) in Sec.  
226.10(e), which generally prohibits creditors, in connection with a 
credit card account under an open-end (not home-secured) consumer 
credit plan, from imposing 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 final rule adopts new Sec.  
226.10(e) as proposed.
    Separate fee. Proposed comment 10(e)-1 defined ``separate fee'' as 
a fee imposed on a consumer for making a single payment to the account. 
Consumer group commenters suggested that the definition of the term 
``separate fee'' was too narrow and could create a loophole for 
periodic fees, such as a monthly fee, to allow consumers to make a 
payment. Consistent with the statutory provision in TILA Section 
127(l), the Board believes 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 revises proposed comment 10(e)-1 by removing the 
word ``single'' in order to clarify that the prohibition on a 
``separate fee''

[[Page 7712]]

applies to any general payment method which does not involve expedited 
service by a customer service representative and to any payment to an 
account, regardless of whether the payment involves a single payment 
transaction or multiple payment transactions. Therefore, the term 
separate fee includes any fee which may be imposed periodically to 
allow consumers to make payments. The Board also notes that periodic 
fees may be prohibited because they do not involve expedited service or 
a customer service representative. The term separate fee also includes 
any fee imposed to allow a consumer to make multiple payments to an 
account, such as automatic monthly payments, if the payments do not 
involve expedited service by a customer service representative. 
Accordingly, comment 10(e)-1 is adopted with the clarifying revision.
    Expedited. The Board proposed comment 10(e)-2 to clarify 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. In response to the October 2009 Regulation Z 
Proposal, industry commenters asked the Board to revise guidance on the 
term ``expedited'' to include representative-assisted payments that are 
scheduled to occur on a specific date, i.e., a future date, and then 
credited or posted immediately on the requested specified date. The 
Board has not included this interpretation of expedited in the final 
rule because the Board believes it would be inconsistent with the 
intent of TILA Section 127(l). Comment 10(e)-2 is adopted as proposed.
    Customer service representative. Proposed comment 10(e)-3 clarified 
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. One commenter requested that 
the Board clarify that a creditor's customer service representative 
includes the creditor's agents or service bureau. The Board notes that 
proposed comment 10(e)-3 already stated that payment service may be 
provided by an agent of the creditor. Consumer group commenters 
strongly supported the Board's guidance that a customer service 
representative does not include automated payment systems, such as a 
voice response unit or interactive voice response system. Another 
commenter, however, asked the Board to clarify guidance for payment 
transactions which involve both an automated system and the assistance 
of a live customer service representative. Specifically, the commenter 
noted that some payments systems require an initial consumer contact 
through an automated system but the payment is ultimately handled by a 
live customer service representative. The Board acknowledges that some 
payments transactions may require the use of an automated system for a 
portion of the transaction, even if a live customer service 
representative provides assistance. For example, a customer's telephone 
call may be answered by an automated system before the customer is 
directed to a live customer service representative, or a customer 
service representative may direct a customer to an automated system to 
complete the payment transaction, such as entering personal 
identification numbers (PINs). The Board notes that a payment made with 
the assistance of a live representative or agent of the credit, which 
also requires an automated system for a portion of the transaction, is 
considered service by a live customer service representative. The Board 
is amending comment 10(e)-3 in the final rule accordingly.

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 is implementing new TILA Section 164(c) in Sec.  
226.10(f). Proposed Sec.  226.10(f) prohibited 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 discussed in the October 2009 
Regulation Z Proposal, the Board modified the language of new TILA 
Section 164(c) to clarify that the meaning of the term ``office'' 
applies only to changes in the address of a branch or office at which 
payments on a credit card account are accepted. To avoid potential 
confusion, the Board revises Sec.  226.10(f) to clarify that the 
prohibition on imposing a late fee or finance charge applies only 
during the 60-day period following the date on which a material change 
took effect. The Board adopts Sec.  226.10(f) as proposed with the 
clarifying revision.
    Comment 10(f)-1 clarified 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. No comments were received on proposed 
comment 10(f)-1 in particular; however, as discussed below, industry 
commenters opposed including the closing of a bank branch as an example 
of a material change in address. See comment 10(f)-4.iv. The final rule 
adopts comment 10(f)-1 as proposed.
    The Board also proposed comment 10(f)-2 to provide guidance to 
creditors in determining whether a change or delay is material. 
Proposed comment 10(f)-2 clarified 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 further clarified 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 final rule adopts comment 10(f)-2 as proposed.
    In the October 2009 Regulation Z Proposal, the Board acknowledged 
that a card issuer may face operational challenges in order 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. Accordingly, 
proposed comment 10(f)-3 provided card issuers with a safe harbor for 
complying with the proposed rule. Specifically, a card issuer may elect 
not to impose a late fee or finance charge on a consumer's account for 
the 60-day period following a change in address for receiving payment 
or procedures for handling cardholder payments which could reasonably 
expected to cause a material delay in crediting of a payment to the 
consumer's account. The Board solicited comment on other reasonable 
methods that card issuers may use in complying with proposed Sec.  
226.10(f). The Board did not receive any significant comments on the 
proposed safe harbor or suggestions for alternative reasonable methods 
which would assist card issuers in compliance.
    Despite the lack of comments, the Board believes that a safe harbor 
based on a ``reasonably expected'' standard is

[[Page 7713]]

appropriate. The safe harbor recognizes the operational difficulty in 
determining in advance the number of customer accounts affected by a 
particular change in payment address or procedure and whether that 
change will cause a late payment. However, upon further consideration, 
the Board notes that in certain circumstances, a late fee or finance 
charge may have been improperly imposed because the late payment was 
subsequently determined to have been caused by a material change in the 
payment address or procedures. Accordingly, the final rule revises 
comment 10(f)-3, which is renumbered comment 10(f)-3.i, to clarify that 
for purposes of Sec.  226.10(f), a late fee or finance charge is not 
imposed if the fee or charge is waived or removed, or an amount equal 
to the fee or charge is credited to the account. Furthermore, the Board 
amends proposed comment 10(f)-3 by adopting comment 10(f)-3.ii, which 
provides a safe harbor specifically for card issuers with a retail 
location which accepts payment.
    The final rule permits a card issuer to impose a late fee or 
finance charge for a late payment during the 60-day period following a 
material change in a retail location which accepts payments, such as 
closing a retail location or no longer accepting payments at the retail 
location. However, if a card issuer is notified by a consumer, no later 
than 60 days after the card issuer transmitted the first periodic 
statement that reflects the late fee or finance charge for a late 
payment, that a late payment was caused by such change, the card issuer 
must waive or remove any late fee or finance charge, or credit an 
amount equal to any late fee or finance charge, imposed on the account 
during the 60-day period following the date on which the change took 
effect. In response to concerns raised by commenters, the Board 
believes a safe harbor for card issuers which accept payment at retail 
locations addresses the operational difficulty of determining which 
consumers are affected by a material change in a retail location or 
procedures for handling payment at a retail location. Accordingly, the 
final rule adopts comment 10(f)-3(ii) and provides an example as 
guidance in new comment 10(f)-4.vi, as discussed below.
    Proposed comment 10(f)-4 provided illustrative examples consistent 
with proposed Sec.  226.10(f), in order to provide additional guidance 
to creditors. Proposed comment 10(f)-4.i illustrated an example of a 
change in mailing address which is immaterial. No comments were 
received on this example, and the final rule adopts comment 10(f)-4.i 
as proposed. Proposed comment 10(f)-4.ii illustrated an example of a 
material change in mailing address which would not cause a material 
delay in crediting a payment. No comments were received on this 
example, and the final rule adopts comment 10(f)-4.ii as proposed. 
Proposed comment 10(f)-4.iii illustrated an example of a material 
change in mailing address which could cause a material delay in 
crediting a payment. No comments were received on this example, and the 
final rule adopts comment 10(f)-4.iii as proposed.
    Proposed comment 10(f)-4.iv illustrated an example of a permanent 
closure of a local branch office of a card issuer as a material change 
in address for receiving payment. Several industry commenters raised 
concerns about proposed comment 10(f)-4.iv. In particular, industry 
commenters argued that a branch closing of a bank is not a material 
change in the address for receiving payment. One industry commenter 
suggested that a bank branch closing should not be considered as a 
factor in determining the cause of a late payment. Two commenters noted 
that national banks and insured depository institutions are required to 
give 90 days' advance notice related to the branch closing as well as 
post a notice at the branch location at least 30 days prior to closure. 
See 12 U.S.C. 1831r-1; 12 CFR 5.30(j). Commenters argued that these 
advance notice requirements provide adequate notice for customers to 
make alternative arrangements for payment.
    Furthermore, industry commenters stated that interpreting a branch 
closing as a material change, as proposed in comment 10(f)-4.iv, would 
impose significant operational challenges and costs on banks in order 
to comply with this provision. Specifically, commenters stated that 
banks would have difficulty determining which customers ``regularly 
make payments'' at particular branches and which late payments were 
caused by the closing of a bank branch. In addition, commenters 
asserted that they would be unable to identify customers who are 
outside the ``footprint'' of a branch and unsuccessfully attempt to 
make a payment at the closed branch, such as if the customer is 
traveling in a different city. Furthermore, one commenter noted that 
banks can respond to a one-time complaint from a customer impacted by a 
branch closing.
    The Board is adopting comment 10(f)-4.iv, but with clarification 
and additional guidance based on the comments and the Board's further 
consideration. In order to ease compliance burden, the final comment 
clarifies that a card issuer is not required to determine whether a 
customer ``regularly makes payments'' at a particular branch. As noted 
by commenters, certain banks and card issuers may have other regulatory 
obligations which require the identification of and notification to 
customers of a local bank branch. The final comment is revised to 
provide an example of a card issuer which chooses to rely on the safe 
harbor for the late payments on customer accounts which it reasonably 
believes may be affected by the branch closure.
    Proposed comment 10(f)-4.v illustrated an example of a material 
change in the procedures for handling cardholder payments. The Board 
did not receive comments on this example, and the final rule adopts 
comment 10(f)-4.v as proposed.
    The final rule includes new comment 10(f)-4.vi to address 
circumstances when a card issuer which accepts payment at a retail 
location makes a material change in procedures for handling cardholder 
payments the retail location, such as no longer accepting payments in 
person as a conforming payment. The new example also provides guidance 
for circumstances when a card issuer is notified by a consumer that a 
late fee or finance charge for a late payment was caused by a material 
change. Under these circumstances, a card issuer must waive or remove 
the late fee or finance charge or credit the customer's account in an 
amount equal to the fee or charge.
    Proposed comment 10(f)-5 clarified 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 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. The 
Board received no significant comment addressing comment 10(f)-5, which 
is adopted as proposed.

Section 226.11 Treatment of Credit Balances; Account Termination

11(c) Timely Settlement of Estate Debts
    The Credit Card Act adds new TILA Section 140A and requires that 
the Board, in consultation with the Federal Trade Commission and each 
other agency referred to in TILA Section 108(a), to 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

[[Page 7714]]

balance of a deceased accountholder in a timely manner. 15 U.S.C. 1651. 
The Board proposed to implement TILA Section 140A in new Sec.  
226.11(c).
    The final rule generally requires that a card issuer adopt 
reasonable written procedures designed to ensure that an administrator 
of an estate of a deceased accountholder can determine the amount of 
and pay any balance on the account. The final rule also has two 
specific requirements which effectuate the statute's purpose. First, 
the final rule requires a card issuer to disclose the amount of the 
balance on the account in a timely manner upon request by an 
administrator. The final rule provides a safe harbor of 30 days. 
Second, the final rule places certain limitations on card issuers 
regarding fees, annual percentage rates, and interest. Specifically, 
upon request by an administrator for the balance amount, a card issuer 
must not impose fees on the account or increase any annual percentage 
rate, except as provided by the rule. In addition, a card issuer must 
waive or rebate interest, including trailing or residual interest, for 
any payment in full received within 30 days of disclosing a timely 
statement of balance.
    Proposed Sec.  226.11(c)(1) set forth the general rule requiring 
card issuers to adopt reasonable procedures designed to ensure that any 
administrator 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. For clarity, the Board proposed 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 proposed to include ``executor'' in proposed 
Sec.  226.11(c). The Board stated 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. In order to 
provide further guidance, the Board clarifies that for purposes of 
Sec.  226.11(c), the term ``administrator'' of an estate means an 
administrator, executor, or any personal representative of an estate 
who is authorized to act on behalf of the estate. Accordingly, the 
final rule removes the reference to ``executor'' in Sec.  226.11(c), 
renumbers proposed comment 11(c)-1 as comment 11(c)-2, and adopts the 
guidance on ``administrator'' in new comment 11(c)-1.
    As the Board discussed in the October 2009 Regulation Z Proposal, 
the Board recognized that some card issuers may already have 
established procedures for the resolution of a deceased accountholder's 
balance. The Board believes a ``reasonable procedures'' standard would 
permit card issuers 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. Consumer group commenters suggested that the language of the 
general rule be modified to require that card issuers ``have and follow 
reasonable written procedures'' designed to ensure that an 
administrator of an estate of a deceased accountholder can determine 
the amount of and pay any balance on the account in a timely manner. 
The Board is amending proposed Sec.  226.11(c)(1) to require that the 
reasonable policies and procedures be written. The Board believes that 
the suggested change to add the word ``follow'' is unnecessary because 
there are references throughout Regulation Z and the Board's other 
regulations that require reasonable policies and procedures without an 
explicit instruction that they be followed. In each of these instances, 
the Board has expected and continues to expect that these policies and 
procedures will be followed. The final rule adopts Sec.  226.11(c)(1), 
which has been renumbered Sec.  226.11(c)(1)(i), as amended.
    The Board is renumbering proposed Sec.  226.11(c)(2)(ii) as Sec.  
226.11(c)(1)(ii) in order to clarify that Sec.  226.11(c) does not 
apply to the account of a deceased consumer if a joint accountholder 
remains on the account. Proposed Sec.  226.11(c)(2)(ii) (renumbered as 
Sec.  226.11(c)(1)(ii)) provided that a card issuer may impose fees and 
charges on a deceased consumer's account if a joint accountholder 
remains on the account. Proposed comment 11(c)-3 clarified that a card 
issuer may impose fees and charges on a deceased consumer's account if 
a joint accountholder remains on the account but may not impose fees 
and charges on a deceased consumer's account if only an authorized user 
remains on the account. Consumer groups argued that the Board should 
require card issuers to provide documentary proof that another party to 
the account is a joint accountholder, and not just an authorized user, 
before continuing to impose fees and charges on a deceased consumer's 
account. Specifically, consumer groups raised the concern that card 
issuers may attempt to hold authorized users liable for account 
balances. The Board notes, however, that authorized users are not 
liable for the debts of a deceased accountholder or the estate. The 
final rule adopts proposed Sec.  226.11(c)(2)(ii), which has been 
renumbered Sec.  226.11(c)(1)(ii), and proposed comment 11(c)-3, which 
has been renumbered as comment 11(c)-6 for organizational purposes.
    Proposed comment 11(c)-1 provided examples of reasonable procedures 
consistent with proposed Sec.  226.11(c). The final rule adopts 
proposed comments 11(c)-1.i-iv, which have been renumbered as comments 
11(c)-2.i-iv, as proposed. Industry commenters asked the Board to 
permit card issuers to require evidence, such as written documentation, 
that an administrator, executor, or personal representative has the 
authority to act on behalf of the estate. Commenters raised privacy 
concerns of disclosing financial information to third parties. The 
Board believes a reasonable procedure for verifying an administrator's 
status or authority is consistent with Sec.  226.11(c), without 
significantly increasing administrative burden on an administrator. The 
Board also believes the benefit of greater privacy protection outweighs 
the additional burden. Two commenters also requested that the Board 
permit card issuers to require verification of a customer's death. The 
Board believes, however, that this requirement is unnecessary. 
Therefore, in response to comments received, the Board adopts new 
comment 11(c)-2.v to clarify that card issuers are permitted to 
establish reasonable procedures requiring verification of an 
administrator's authority to act on behalf of an estate.
    Commenters requested that the Board provide additional guidance 
regarding the use of designated communication channels, such as a 
specific toll-free number or mailing address. Industry commenters cited 
the reduced operational costs and burden associated with requiring 
administrators to use designated communication channels because 
specialized training and customer service representatives who handle 
estate matters could be consolidated. Other commenters recommended that 
the Board consider additional methods for providing an easily 
accessible point of contact for estate administrators or family members 
of deceased accountholders. For example, a card issuer could include 
contact information regarding deceased accountholders on a dedicated 
link on a creditor's Web site or on the periodic statement. One 
commenter suggested a standardized form or format which an 
administrator may use to register an accountholder as deceased at 
multiple card issuers. Another commenter argued

[[Page 7715]]

that the examples for reasonable procedures should address practical 
procedures, and not ``debt forgiveness.'' Consumer groups believed the 
examples in proposed comment 11(c)-1 did not address the failure of 
creditors to respond to an administrator's inquiries or correspondence. 
Consumer groups recommended that the Board consider additional 
procedures, such as acknowledging receipt of an administrator's 
inquiry, providing details regarding payoff, and providing a payoff 
receipt. In response to comments received, the Board adopts new comment 
11(c)-2.vi and 11(c)-2.vii to provide additional guidance. New comment 
11(c)-2.vi clarifies that a card issuer may designate a department, 
business unit, or communication channel for administrators in order to 
expedite handling estate matters. New comment 11(c)-2.vii clarifies 
that a card issuer should be able to direct administrators who call a 
toll-free number or send mail to a general correspondence address to 
the appropriate customer service representative, department, business 
unit, or communication channel.
    For organizational purposes, the Board has renumbered proposed 
Sec.  226.11(c)(3) as Sec.  226.11(c)(2) in the final rule. Proposed 
Sec.  226.11(c)(3)(i) required a card issuer to disclose the amount of 
the balance on the account in a timely manner, upon request by the 
administrator of the estate. The Board believed a timely statement 
reflecting the deceased accountholder's balance is necessary to assist 
administrators with the settlement of estate debts. Consumer groups 
urged the Board not to require a formal request for a statement 
balance. Instead, card issuers should be required to act in good faith 
whenever informed of a consumer's death and the presence of an estate 
administrator. One commenter asked the Board to clarify that the rule 
does not supplant state probate laws and timelines for the resolution 
of estates. Specifically, the commenter argued that state probate law 
accomplishes the goals of the statutory provision and that compliance 
with state probate requirements should be explicitly stated as a 
reasonable procedure for the timely settlement of estates. The Board 
understands that state probate procedures are well-established, and 
this final rule does not relieve the card issuer of its obligations, 
such as filing a claim, nor affect a creditor's rights, such as 
contesting a claim rejection, under state probate laws. The final rule 
adopts Sec.  226.11(c)(3)(i), which has been renumbered as Sec.  
226.11(c)(2)(i), as proposed with technical revisions.
    Proposed Sec.  226.11(c)(3)(ii) provided card issuers with a safe 
harbor for disclosing the balance amount in a timely manner, stating 
that it would be reasonable for a card issuer to provide the balance on 
the account within 30 days of receiving a request by the administrator 
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 solicited 
comment as to whether 30 days provides creditors with sufficient time 
to provide a statement of the balance on the deceased consumer's 
account. Industry commenters and consumer groups generally agreed that 
30 days is sufficient time to provide a timely statement of balance on 
an account. One industry commenter, however, expressed concern that 30 
days would be insufficient and requested 45-60 days instead to ensure 
all charges were processed. Based on the comments received, the Board 
believes 30 days is sufficient for a card issuer to provide a timely 
statement of the balance amount. The final rule adopts Sec.  
226.11(c)(3)(ii), which has been renumbered as Sec.  226.11(c)(2)(ii), 
as proposed with technical revisions.
    Proposed comment 11(c)-4 (renumbered as comment 11(c)-2) clarified 
that a card issuer may receive a request for the amount of the balance 
on the account in writing or by telephone call from the administrator 
of an estate. If a request is made in writing, such as by mail, the 
request is received when the card issuer receives the correspondence. 
No significant comments were received on proposed comment 11(c)-4, and 
it is adopted as proposed with technical revisions and renumbered as 
comment 11(c)-2 for organizational purposes.
    Proposed comment 11(c)-5 (renumbered as comment 11(c)-3) provided 
guidance to card issuers in complying with the requirement to provide a 
timely statement of balance. Card issuers may provide the amount of the 
balance, if any, by a written statement or by telephone. Proposed 
comment 11(c)-5 also clarified that proposed Sec.  226.11(c)(3) 
(renumbered as Sec.  226.11(c)(2)) would not preclude a card issuer 
from providing the balance amount to appropriate persons, other than 
the administrator of an estate. For example, the Board noted that the 
proposed rule would not preclude a card issuer, 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 comment 11(c)-5 further 
clarified that proposed Sec.  226.11(c)(3) (renumbered as Sec.  
226.11(c)(2)) does not relieve card issuers of the requirements to 
provide a periodic statement, under Sec.  226.5(b)(2). A periodic 
statement, under Sec.  226.5(b)(2), may satisfy the requirements of 
proposed Sec.  226.11(c)(3) (renumbered as Sec.  226.11(c)(2)), if 
provided within 30 days of notice of the consumer's death. A commenter 
stated that proposed comment 11(c)-5 should reference the 30-day period 
following the date of the balance request, and not the notice of the 
accountholder's death. The final rule revises proposed comment 11(c)-5 
to reference the date of the balance request with regard to using a 
periodic statement to satisfy the requirements of new Sec.  
226.11(c)(2) and renumbers proposed comment 11(c)-5 as comment 11(c)-3 
for organizational purposes.
    Proposed Sec.  226.11(c)(2)(i) (renumbered as Sec.  
226.11(c)(3)(i)) prohibited card issuers from imposing fees and charges 
on a deceased consumer's account upon receiving a request for the 
amount of any balance from an administrator of an estate. As stated in 
the October 2009 Regulation Z Proposal, the Board believed 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. The 
Board solicited comment on whether a card issuer should be permitted to 
resume the imposition of fees and charges if the administrator of an 
estate has not paid the account balance within a specified period of 
time. Consumer group commenters opposed resuming fees and charges 
because settling estates can be time-consuming and an administrator may 
not have authority to pay the balance for some time. One industry 
commenter argued that there should be no prohibition against charging 
fees or interest because it was unreasonable to provide an interest-
free loan for an indefinite period of time until an estate has settled. 
Most industry commenters, however, requested that card issuer be 
permitted to resume charging fees and interest if the balance on the 
account has not been paid within a specified time period after the 
balance request has been made. Most industry commenters stated 30 days 
was a reasonable time to pay before fees and interest would resume 
accruing, and two commenters stated 60 days may be reasonable. Two 
commenters also suggested that after the time to pay had elapsed, a 
creditor

[[Page 7716]]

could be required to provide an updated statement upon subsequent 
request by an administrator. One government agency suggested that the 
Board simplify the final rule by determining the amount which can be 
collected from an estate as the balance on the periodic statement for 
the billing cycle during which the accountholder died.
    The Board is revising proposed Sec.  226.11(c)(2), which has been 
renumbered as Sec.  226.11(c)(3), based on the comments received and 
the Board's further consideration. New Sec.  226.11(c)(3)(i) prohibits 
card issuers from imposing any fee, such as a late fee or annual fee, 
on a deceased consumer's account upon receiving a request from an 
administrator of an estate. The Board believes that in order to best 
effectuate the statute's intent, it is appropriate to limit fees or 
penalties on a deceased consumer's account which is closed or frozen. 
For the purposes of Sec.  226.11(c), new Sec.  226.11(c)(3)(i) also 
prohibits card issuers from increasing the annual percentage rate on an 
account, and requires card issuers to maintain the applicable interest 
rate on the date of receiving the request, except as provided by Sec.  
226.55(b)(2).
    New Sec.  226.11(c)(3)(ii) requires card issuers to waive or rebate 
trailing or residual interest if the balance disclosed pursuant to 
Sec.  226.11(c)(2) is paid in full within 30 days after disclosure. A 
card issuer may continue to accrue interest on the account balance from 
the date on which a timely statement of balance is provided, however, 
that interest must be waived or rebated if the card issuer receives 
payment in full within 30 days. A card issuer is not required to waive 
or rebate interest if payment in full is not received within 30 days. 
For example, on March 1, a card issuer receives a request from an 
administrator for the amount of the balance on a deceased consumer's 
account. On March 25, the card issuer provides an administrator with a 
timely statement of balance in response to the administrator's request. 
If the administrator makes payment in full on April 24, a card issuer 
must waive or rebate any additional interest that accrued on the 
balance between March 25 and April 24. However, if a card issuer 
receives only a partial payment on or before April 24 or receives 
payment in full after April 24, a card issuer is not required to waive 
or rebate interest that accrued between March 25 and April 24. The 
Board believes the requirement to waive or rebate trailing or residual 
interest, when payment is received within the 30-day period following 
disclosure of the balance, provides an administrator with certainty as 
to the amount required to pay the entire account balance and assists 
administrators in settling the estate. The Board believes a 30-day 
period is generally sufficient for an administrator to arrange for 
payment.. The Board notes that if an administrator is unable to pay the 
card issuer before the 30-day period following the timely statement of 
balance has elapsed, an administrator is permitted to make subsequent 
requests for an updated statement of balance. In order to provide 
additional guidance, the Board is adopting new comment 11(c)-5, which 
provides an illustrative example.
    Proposed comment 11(c)-2 clarified that a card issuer 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). No comments were received on proposed comment 11(c)-2, 
and it is adopted as proposed with technical revision and renumbered as 
comment 11(c)-4 for organizational purposes.

Section 226.12 Special Credit Card Provisions

Section 226.13 Billing Error Resolution

    Comment 12(b)-3 states that a card issuer must investigate claims 
in a reasonable manner before imposing liability for an unauthorized 
use, and sets forth guidance on conducting an investigation of a claim. 
Comment 13(f)-3 contains similar guidance for a creditor investigating 
a billing effort. The January 2009 Regulation Z Rule amended both 
comments to specifically provide that a card issuer (or creditor) may 
not require a consumer to submit an affidavit or to file a police 
report as a condition of investigating a claim. In the May 2009 
Regulation Z Proposed Clarifications, the Board proposed to clarify 
that the card issuer (or creditor) could, however, require a consumer's 
signed statement supporting the alleged claim. Such a signed statement 
may be necessary to enable the card issuer to provide some form of 
certification indicating that the cardholder's claim is legitimate, for 
example, to obtain documentation from a merchant relevant to a claim or 
to pursue chargeback rights. Accordingly, the Proposed Clarifications 
would have amended comments 12(b)-3 and 13(f)-3 to reflect the ability 
of the card issuer (or creditor) to require a consumer signed statement 
for these types of circumstances.
    The Board received one comment in support of the proposed 
clarification. This industry commenter stated that expressly permitting 
a signature requirement would facilitate expedited resolutions of error 
claims. The final rule adopts the clarifications in comments 12(b)-3 
and 13(f)-3, as proposed.

Section 226.16 Advertising

    Although Sec.  226.16 was republished in its entirety, the Board 
only solicited comment on proposed Sec. Sec.  226.16(f) and (h), as the 
other sections of Sec.  226.16 were previously finalized in the January 
2009 Regulation Z Rule. Therefore, the Board is only addressing 
comments received on Sec. Sec.  226.16(f) and (h).
16(f) Misleading Terms
    As discussed in the section-by-section analysis for Sec.  
226.5(a)(2)(iii), the Board did not receive any comments regarding 
Sec.  226.16(f), which is adopted as proposed.
16(h) Deferred Interest or Similar Offers
    In the May 2009 Regulation Z Proposed Clarifications, the Board 
proposed to use its authority under TILA Section 143(3) to add a new 
Sec.  226.16(h) to address the Board's concern that the disclosures 
currently required under Regulation Z may not adequately inform 
consumers of the terms of deferred interest offers. 15 U.S.C. 1663(3). 
The Board republished this proposal in the October 2009 Regulation Z 
Proposal. The proposed rules regarding deferred interest would have 
incorporated many of the same formatting concepts that were previously 
adopted for promotional rates under Sec.  226.16(g). Specifically, the 
Board proposed to require that the deferred interest period be 
disclosed in immediate proximity to each statement regarding interest 
or payments during the deferred interest period. The Board also 
proposed that certain information about the terms of the deferred 
interest offer be disclosed in a prominent location closely proximate 
to the first statement regarding interest or payments during the 
deferred interest period. These proposals are discussed in more detail 
below.
    The Board received broad support from both consumer group and 
industry commenters for its proposal to implement disclosure 
requirements for advertisements of deferred interest offers. Consumer 
group commenters, however, believed that the Board should go further 
and ban ``no interest'' advertising as deceptive when used in 
conjunction with an offer that could potentially result in the consumer 
being charged interest reaching back to the date of purchase. The Board 
believes that deferred interest plans can provide benefits to consumers 
who properly

[[Page 7717]]

understand how the product is structured. Therefore, the Board believes 
the appropriate approach to addressing deferred interest offers is to 
ensure that important information about these offers is provided to 
consumers through the disclosure requirements proposed in Sec.  
226.16(h) instead of banning the term ``no interest'' in advertisements 
of deferred interest plans.
16(h)(1) Scope
    Similar to the rules applicable to promotional rates under Sec.  
226.16(g), the Board proposed that the rules related to deferred 
interest offers under proposed Sec.  226.16(h) be applicable to any 
advertisement of such offers for open-end (not home-secured) plans. In 
addition, the proposed rules applied to promotional materials 
accompanying applications or solicitations made available by direct 
mail or electronically, as well as applications or solicitations that 
are publicly available. The Board did not receive any significant 
comments to Sec.  226.16(h)(1), which is adopted as proposed.
16(h)(2) Definitions
    In the May 2009 Regulation Z Proposed Clarifications, the Board 
proposed to define ``deferred interest'' in new Sec.  226.16(h)(2) as 
finance charges on balances or transactions that a consumer is not 
obligated to pay if those balances or transactions are paid in full by 
a specified date. The term would not, however, include finance charges 
the creditor allows a consumer to avoid in connection with a recurring 
grace period. Therefore, an advertisement including information on a 
recurring grace period that could potentially apply each billing 
period, would not be subject to the additional disclosure requirements 
under Sec.  226.16(h).
    The Board also proposed in comment 16(h)-1 to clarify that deferred 
interest offers would not include offers that allow a consumer to defer 
payments during a specified time period, but where the consumer is not 
obligated under any circumstances for any interest or other finance 
charges that could be attributable to that period. Furthermore, 
proposed comment 16(h)-1 specified that deferred interest offers would 
not include zero percent APR offers where a consumer is not obligated 
under any circumstances for interest attributable to the time period 
the zero percent APR was in effect, although such offers may be 
considered promotional rates under Sec.  226.16(g)(2)(i).
    Moreover, the Board proposed to define the ``deferred interest 
period'' for purposes of proposed Sec.  226.16(h) as the maximum period 
from the date the consumer becomes obligated for the balance or 
transaction until the specified date that the consumer must pay the 
balance or transaction in full in order to avoid finance charges on 
such balance or transaction. To clarify the meaning of deferred 
interest period, the Board proposed comment 16(h)-2 to state that the 
advertisement need not include the end of an informal ``courtesy 
period'' in disclosing the deferred interest period. The Board did not 
receive any significant comments on the proposed definitions under 
Sec.  226.16(h)(2) and associated commentary. Consequently, Sec.  
226.16(h)(2) and comment 16(h)-2 are adopted as proposed. Comment 
16(h)-1 is adopted as proposed with one technical amendment.
16(h)(3) Stating the Deferred Interest Period
    General rule. The Board proposed Sec.  226.16(h)(3) to require that 
advertisements of deferred interest or similar plans disclose the 
deferred interest period clearly and conspicuously in immediate 
proximity to each statement of a deferred interest triggering term. 
Proposed Sec.  226.16(h)(3) also required advertisements that use the 
phrase ``no interest'' or similar term to describe the possible 
avoidance of interest obligations under the deferred interest or 
similar program to state ``if paid in full'' in a clear and conspicuous 
manner preceding the disclosure of the deferred interest period. For 
example, as described in proposed comment 16(h)-7, an advertisement may 
state ``no interest if paid in full within 6 months'' or ``no interest 
if paid in full by December 31, 2010.'' The Board proposed to require 
these disclosures because of concerns that the statement ``no 
interest,'' in the absence of additional details about the applicable 
conditions of the offer may confuse consumers who might not understand 
that they need to pay their balances in full by a certain date in order 
to avoid the obligation to pay interest. Commenters supported the 
Board's proposal, and Sec.  226.16(h)(3) and comment 16(h)-7 are 
adopted as proposed.
    Immediate proximity. Proposed comment 16(h)-3 provided guidance on 
the meaning of ``immediate proximity'' by establishing a safe harbor 
for disclosures made in the same phrase. The guidance was identical to 
the safe harbor adopted previously for promotional rates. See comment 
16(g)-2. Therefore, if the deferred interest period is disclosed in the 
same phrase as each statement of a deferred interest triggering term 
(for example, ``no interest if paid in full within 12 months'' or ``no 
interest if paid in full by December 1, 2010'' the deferred interest 
period would be deemed to be in immediate proximity to the statement.
    Industry commenters were supportive of the Board's approach. 
Consumer group commenters suggested that the safe harbor require that 
the deferred interest period be adjacent to or immediately before or 
after the triggering term instead of in the same phrase. As the Board 
discussed in adopting a similar safe harbor for promotional rates, the 
Board believes that advertisers should be provided with some 
flexibility to make this disclosure. For example, if the deferred 
interest offer related to the purchase of a specific item, the 
advertisement might state, ``no interest on this refrigerator if paid 
in full within 6 months.'' Therefore, the Board is adopting comment 
16(h)-3 as proposed.
    Clear and conspicuous standard. The Board proposed to amend comment 
16-2.ii to provide that advertisements clearly and conspicuously 
disclose the deferred interest period only if the information is 
equally prominent to each statement of a deferred interest triggering 
term. Under proposed comment 16-2.ii, if the disclosure of the deferred 
interest period is the same type size as the statement of the deferred 
interest triggering term, it would be deemed to be equally prominent.
    The Board also proposed to clarify in comment 16-2.ii that the 
equally prominent standard applies only to written and electronic 
advertisements. This approach is consistent with the treatment of 
written and electronic advertisements of promotional rates. The Board 
also noted that disclosure of the deferred interest period under Sec.  
226.16(h)(3) for non-written, non-electronic advertisements, while not 
required to meet the specific clear and conspicuous standard in comment 
16-2.ii would nonetheless be subject to the general clear and 
conspicuous standard set forth in comment 16-1.
    Consumer group commenters recommended that the Board apply the 
equally prominent standard to all advertisements instead of only to 
written and electronic advertisements. As the Board discussed in its 
proposal, because equal prominence is a difficult standard to measure 
outside the context of written and electronic advertisements, the Board 
believes that the guidance on clear and conspicuous disclosures set 
forth in proposed comment 16-2.ii, should apply solely to written and 
electronic advertisements.

[[Page 7718]]

16(h)(4) Stating the Terms of the Deferred Interest Offer
    In order to ensure that consumers notice and fully understand 
certain terms related to a deferred interest offer, the Board proposed 
that certain disclosures be required to be in a prominent location 
closely proximate to the first listing of a statement of ``no 
interest,'' ``no payments,'' or ``deferred interest'' or similar term 
regarding interest or payments during the deferred interest period. In 
particular, the Board proposed to require a statement that if the 
balance or transaction is not paid within the deferred interest period, 
interest will be charged from the date the consumer became obligated 
for the balance or transaction. The Board also proposed to require a 
statement, if applicable, that interest can also be charged from the 
date the consumer became obligated for the balance or transaction if 
the consumer's account is in default prior to the end of the deferred 
interest period. To facilitate compliance with this provision, the 
Board proposed model language in Sample G-24 in Appendix G.
    Prominent location closely prominent. To be consistent with the 
requirement in Sec.  226.16(g)(4) that terms be in a ``prominent 
location closely proximate to the first listing,'' the Board proposed 
guidance in comments 16(h)-4 and 16(h)-5 similar to comments 16(g)-3 
and 16(g)-4. As a result, proposed comment 16(h)-4 provided that the 
information required under proposed Sec.  226.16(h)(4) that is in the 
same paragraph as the first listing of a statement of ``no interest,'' 
``no payments, ``deferred interest'' or similar term regarding interest 
or payments during the deferred interest period would have been deemed 
to be in a prominent location closely proximate to the statement. 
Similar to comment 16(g)-3 for promotional rates, information appearing 
in a footnote would not be deemed to be in a prominent location closely 
proximate to the statement.
    Some consumer group commenters expressed opposition to the safe 
harbor for ``prominent location closely proximate,'' and suggested that 
a disclosure be deemed closely proximate only if it is side-by-side 
with or immediately under or above the triggering phrase. The Board 
believes that the safe harbor under proposed comment 16(h)-4 strikes 
the appropriate balance of ensuring that certain information concerning 
deferred interest or similar programs is located near the triggering 
phrase but also providing sufficient flexibility for advertisers. For 
this reason, and for consistency with a similar safe harbor in comment 
16(g)-3 for promotional rates, comment 16(h)-4 is adopted as proposed.
    First listing. Proposed comment 16(h)-5 further provided that the 
first listing of a statement of ``no interest,'' ``no payments,'' or 
deferred interest or similar term regarding interest or payments during 
the deferred interest period is the most prominent listing of one of 
these statements on the front side of the first page of the principal 
promotional document. The proposed comment borrowed the concept of 
``principal promotional document'' from the Federal Trade Commission's 
definition of the term under its regulations promulgated under the Fair 
Credit Reporting Act. 16 CFR 642.2(b). Under the proposal, if one of 
these statements is not listed on the principal promotional document or 
there is no principal promotional document, the first listing of one of 
these statements would be deemed to be the most prominent listing of 
the statement on the front side of the first page of each document 
containing one of these statements. The Board also proposed that the 
listing with the largest type size be a safe harbor for determining 
which listing is the most prominent. In the proposed comment, the Board 
also noted that consistent with comment 16(c)-1, a catalog or other 
multiple-page advertisement would have been considered one document for 
these purposes.
    Consumer group commenters suggested that instead of requiring the 
disclosures required under Sec.  226.16(h)(4) to be closely proximate 
to the first listing of the triggering term on the principal 
promotional document, the disclosures should be closely proximate to 
the first listing of the triggering term on every document in a 
mailing. The Board believes that the guidance on what constitutes the 
``first listing'' should be the same as the approach taken for comment 
16(g)-4 for promotional rates. Therefore, comment 16(h)-5 is adopted as 
proposed.
    Segregation. The Board also proposed comment 16(h)-6 to clarify 
that the information the Board proposed to require under Sec.  
226.16(h)(4) would not need to be segregated from other information the 
advertisement discloses about the deferred interest offer. This may 
include triggered terms that the advertisement is required to disclose 
under Sec.  226.16(b). The comment is consistent with the Board's 
approach on many other required disclosures under Regulation Z. See 
comment 5(a)-2. Moreover, the Board believes flexibility is warranted 
to allow advertisers to provide other information that may be essential 
for the consumer to evaluate the offer, such as a minimum purchase 
amount to qualify for the deferred interest offer. The Board received 
no comments on proposed comment 16(h)-6, and the comment is adopted as 
proposed.
    Clear and conspicuous disclosure. The Board proposed to amend 
comment 16-2.ii to require equal prominence only for the disclosure of 
the information required under Sec.  226.16(h)(3). Therefore, 
disclosures under proposed Sec.  226.16(h)(4) are not required to be 
equally prominent to the first listing of the deferred interest 
triggering statement. Consumer group commenters, however, recommended 
that these disclosures also be required to be equally prominent to the 
triggering statement. As the Board discussed in the May 2009 Regulation 
Z Proposed Clarifications, the Board believes that requiring equal 
prominence to the triggering statement for this information would 
render an advertisement difficult to read and confusing to consumers 
due to the amount of information the Board is requiring under Sec.  
226.16(h)(4). Therefore, the Board declines to make these suggested 
amendments to comment 16-2.ii.
    Non-written, non-electronic advertisements. As discussed above in 
the section-by-section analysis to Sec.  226.16(h)(1), the requirements 
of Sec.  226.16(h) apply to all advertisements, including non-written, 
non-electronic advertisements. To provide advertisers with flexibility, 
the Board proposed that only written or electronic advertisements be 
subject to the requirement to place the terms of the offer in a 
prominent location closely proximate to the first listing of a 
statement of ``no interest,'' ``no payments,'' or ``deferred interest'' 
or similar term regarding interest or payments during the deferred 
interest period.
    As with their comments regarding clear and conspicuous disclosures 
under Sec.  226.16(h)(3), consumer group commenters suggested that the 
specific formatting rules under Sec.  226.16(h)(4) should apply to non-
written, non-electronic advertisements. Given the difficulty of 
applying these standards to non-written, non-electronic advertisements 
and the time and space constraints of such media, the Board believes 
this exclusion is appropriate. Consequently, for non-written, non-
electronic advertisements, the information required under Sec.  
226.16(h)(4) must be included in the advertisement, but is not subject 
to any proximity or formatting requirements

[[Page 7719]]

other than the general requirement that information be clear and 
conspicuous, as contemplated under comment 16-1.
16(h)(5) Envelope Excluded
    The Board proposed to exclude 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 from the requirements of Sec.  
226.16(h)(4). Consumer group commenters objected to the Board's 
proposal to exempt envelopes, banner advertisements, and pop-up 
advertisements from these requirements. One industry commenter 
recommended that the exception in Sec.  226.16(h)(5) should be amended 
to include the requirements of Sec.  226.16(h)(3).
    Given the limited space that envelopes, banner advertisements, and 
pop-up advertisements have to convey information, the Board believes 
the burden of providing the information proposed under Sec.  
226.16(h)(4) on these types of communications exceeds any benefit. It 
is the Board's understanding that interested consumers generally look 
at the contents of an envelope or click on the link in a banner 
advertisement or pop-up advertisement in order to learn more about the 
specific terms of an offer instead of relying solely on the information 
on an envelope, banner advertisement, or pop-up advertisement to become 
informed about an offer. The Board, however, does not believe the 
disclosures required by Sec.  226.16(h)(3) are as burdensome as those 
required by Sec.  226.16(h)(4) and that the exception, should not, 
therefore, be extended to the disclosures required under Sec.  
226.16(h)(3). Thus, Sec.  226.16(h)(5) is adopted as proposed.
Appendix G
    As discussed in the supplementary information to Sec. Sec.  
226.7(b)(14) and 226.16(h), the Board proposed to adopt model language 
for the disclosures required to be given in connection with deferred 
interest or similar programs in Samples G-18(H) and G-24. Proposed 
Sample G-24 contained two model clauses, one for use in connection with 
credit card accounts under an open-end (not home-secured) consumer 
credit plan, and one for use in connection with other open-end (not 
home-secured) consumer credit plans. The model clause for credit card 
issuers reflects the fact that, under those rules, an issuer may only 
revoke a deferred or waived interest program if the consumer's payment 
is more than 60 days late. The Board also proposed to add a new comment 
App. G-12 to clarify which creditors should use each of the model 
clauses in proposed Sample G-24.
    As discussed in the section-by-section analysis to Sec.  
226.7(b)(14), the Board is adopting Sample G-18(H) as proposed. 
Furthermore, the Board did not receive comment on the model language in 
Sample G-24. Therefore, comment App. G-12 and Sample G-24 are also 
adopted as proposed.

Section 226.51 Ability To Pay

51(a) General Ability To Pay
    In the October 2009 Regulation Z Proposal the Board proposed to 
implement new TILA Section 150, as added by Section 109 of the Credit 
Card Act, 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, in new 
Sec.  226.51(a). 15 U.S.C. 1665e. Proposed Sec.  226.51(a)(1) contained 
the substance of the rule in TILA Section 150. Proposed Sec.  
226.51(a)(2) required card issuers to use a reasonable method for 
estimating the required payments under Sec.  226.51(a)(1) and provided 
a safe harbor for such estimation.
51(a)(1) Consideration of Ability To Pay
    Proposed Sec.  226.51(a)(1) generally followed the language 
provided in TILA Section 150 with two clarifying modifications. As 
detailed in the October 2009 Regulation Z Proposal, the Board proposed 
to interpret the term ``required payments'' to mean the required 
minimum periodic payment since the minimum periodic payment is the 
amount that a consumer is required to pay each billing cycle under the 
terms of the contract with the card issuer. In addition, proposed Sec.  
226.51(a)(1) provided 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) also required card 
issuers to have reasonable policies and procedures in place to consider 
this information.
    While consumer group commenters and some industry commenters agreed 
that a consideration of ability to pay should include a review of a 
consumer's income or assets and current obligations, many industry 
commenters asserted that the Credit Card Act did not compel this 
interpretation. These commenters stated that there are other factors 
that they believe are more predictive of a consumer's ability to pay 
than information on a consumer's income or assets, such as payment 
history and credit scores. The Board believes that there indeed may be 
other factors that are useful for card issuers in evaluating a 
consumer's ability to pay, and for this reason, the Board had proposed 
comment 51(a)-1 to clarify that card issuers may also consider other 
factors that are consistent with the Board's Regulation B (12 CFR Part 
202). However, the Board still believes a proper evaluation of a 
consumer's ability to pay must include a review of a consumer's income 
or assets and obligations in order to give card issuers a more complete 
picture of a consumer's current financial state. As a result, the Board 
is adopting Sec.  226.51(a)(1) as Sec.  226.51(a)(1)(i), largely as 
proposed.
    Industry group commenters also detailed challenges with respect to 
collecting income or asset information directly from consumers in 
certain contexts. Several commenters expressed concern regarding the 
lack of privacy for consumers in supplying income or asset information 
if a consumer applies for a credit card at point-of-sale. These 
commenters also suggested that requesting consumers to update income or 
asset information when increasing credit lines also presented several 
issues, especially at point-of-sale. Unlike a new account opening, 
there is generally no formal application for a credit line increase. 
Therefore, card issuers and retailers may need to develop new 
procedures to obtain this information. For point-of-sale credit line 
increases, card issuers and retailers believe this will negatively 
impact the consumer's experience because a consumer may need to take 
extra steps to complete a sale, which may lead consumers to abandon the 
purchase. Other commenters noted that requesting consumers to update 
income or asset information for credit line increases may foster an 
environment that encourages phishing scams as consumers may be required 
to distinguish between legitimate requests for updated information from 
fraudulent requests. Some industry commenters also suggested that the 
Board provide a de minimis exception for which a card issuer need not 
consider income or asset information.
    Given these concerns, the Board is clarifying in comment 51(a)-4, 
which the Board is renumbering as comment 51(a)(1)-4 for organizational 
purposes, that card issuers may obtain income or asset information from 
several sources, similar to comment 51(a)-5 (renumbered as 51(a)(1)-5) 
regarding obligations. In addition to collecting this

[[Page 7720]]

information from the consumer directly, in connection with either this 
credit card account or any other financial relationship the card issuer 
or its affiliates has with the consumer, card issuers may also rely on 
information from third parties, subject to any applicable restrictions 
on information sharing. Furthermore, the Board is aware of various 
models developed to estimate income or assets. The Board believes that 
empirically derived, demonstrably and statistically sound models that 
reasonably estimate a consumer's income or assets may provide 
information as valid as a consumer's statement of income or assets. 
Therefore, comment 51(a)(1)-4 states that card issuers may use 
empirically derived, demonstrably and statistically sound models that 
reasonably estimate a consumer's income or assets.
    Moreover, the Board is not providing a de minimis exception for 
considering a consumer's income or assets. The Board is concerned that 
any de minimis amount chosen could still have a significant impact on a 
particular consumer, depending on the consumer's financial state. For 
example, subprime credit card accounts with relatively ``small'' credit 
lines may still be difficult for certain consumers to afford. 
Suggesting that these card issuers may simply avoid consideration of a 
consumer's income or assets may be especially harmful for consumers in 
this market segment.
    Consumer group commenters suggested that the Board include more 
guidance on how card issuers must evaluate a consumer's income or 
assets and obligations. While consumer group commenters did not 
recommend a specific debt-to-income ratio or any other particular 
quantitative measures, they suggested that card issuers be required to 
consider a debt-to-income ratio and a consumer's disposable income. The 
Board's proposal required card issuers to have reasonable policies and 
procedures in place to consider this information. To provide further 
guidance for card issuers, the Board is adopting a new Sec.  
226.51(a)(1)(ii) to state that reasonable policies and procedures to 
consider a consumer's ability to make the required payments would 
include a consideration of at least one of the following: The ratio of 
debt obligations to income; the ratio of debt obligations to assets; or 
the income the consumer will have after paying debt obligations. 
Furthermore, Sec.  226.51(a)(1)(ii) provides that it would be 
unreasonable for a card issuer to not review any information about a 
consumer's income, assets, or current obligations, or to issue a credit 
card to a consumer who does not have any income or assets.
    Consumer group commenters further suggested that the language be 
modified to require that card issuers ``have and follow reasonable 
written policies and procedures'' to consider a consumer's ability to 
pay. The Board is moving the requirement that card issuers establish 
and maintain reasonable policies and procedures to new Sec.  
226.51(a)(1)(ii) and amending the provision to require that the 
reasonable policies and procedures be written. The Board believes that 
the suggested change to add the word ``follow,'' however, is 
unnecessary. There are references throughout Regulation Z and the 
Board's other regulations that require reasonable policies and 
procedures without an explicit instruction that they be followed. In 
each of these instances, the Board has expected and continues to expect 
that these policies and procedures will be followed. Similarly, the 
Board has the same expectation with Sec.  226.51(a)(1)(ii).
    As noted above, proposed comment 51(a)-1 clarified that card 
issuers may consider credit reports, credit scores, and any other 
factor consistent with Regulation B (12 CFR Part 202) in considering a 
consumer's ability to pay. One industry commenter suggested that the 
Board amend the comment to include a reference to consumer reports, 
which include credit reports. The Board is adopting proposed comment 
51(a)-1 as comment 51(a)(1)-1 with this suggested change.
    Proposed comment 51(a)-2 clarified 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. Several industry commenters asked whether this comment 
required card issuers to update any income or asset information the 
card issuer may have on a consumer prior to a credit line increase on 
an existing account. The Board believes that card issuers should be 
required to update a consumer's income or asset information, similar to 
how card issuers generally update information on a consumer's 
obligations, prior to considering whether to increase a consumer's 
credit line. This will prevent the card issuer from making an 
evaluation of a consumer's ability to make the required payments based 
on stale information. Consistent with the Board's changes to comment 
51(a)-4 (adopted as 51(a)(1)-4), as discussed below, card issuers have 
several options to obtain updated income or asset information. Proposed 
comment 51(a)-2 is adopted as comment 51(a)(1)-2.
    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 clarified that Sec.  226.51(a) applies in both 
situations. Consumer group commenters suggested that credit line 
increases should only be granted upon the request of a consumer. The 
Board believes that if a card issuer conducts the proper evaluation 
prior to a credit line increase, such increases should not be 
prohibited simply because the consumer did not request the increase. 
The consumer is still in control as to how much of the credit line to 
ultimately use. Proposed comment 51(a)-3 is adopted as comment 
51(a)(1)-3, with a minor non-substantive wording change.
    Proposed comment 51(a)-4 provided examples of assets and income the 
card issuer may consider in evaluating a consumer's ability to pay. As 
discussed above, in response to comments on issues related to 
collecting income or asset information directly from consumers, the 
Board is amending comment 51(a)-4 (renumbered as 51(a)(1)-4) to provide 
a parallel comment to comment 51(a)-5 (renumbered as 51(a)(1)-5) 
regarding obligations. Specifically, the Board is clarifying that card 
issuers are not obligated to obtain income or asset information 
directly from a consumer. Card issuers may also obtain this information 
through third parties as well as empirically derived, demonstrably and 
statistically sound models that reasonably estimates a consumer's 
income or assets. The Board believes that, to the extent that card 
issuers are able to obtain information on a consumer's income or assets 
through means other than directly from the consumer, card issuers 
should be provided with flexibility.
    The Board also proposed 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. 
Commenters were supportive of this comment, and the comment is adopted 
as proposed, with one addition. Industry commenters requested that the 
Board clarify that in evaluating a consumer's current open-

[[Page 7721]]

end obligations, card issuers should not be required to assume such 
obligations are fully utilized. The Board agrees. In contrast to the 
Board's safe harbor in estimating the minimum payments for the credit 
account for which the consumer is applying, the card issuer will have 
information on the consumer's historic utilization rates for other 
obligations. With respect to the credit account for which the consumer 
is applying, the card issuer has no information as to how the consumer 
plans to use the account, and assumption of full utilization is thus 
appropriate in that context. Moreover, while credit limit information 
is widely reported in consumer reports, there are still instances where 
such information is not reported. Furthermore, the Board is concerned 
that assuming full utilization of all open-end credit lines could 
result in an anticompetitive environment wherein card issuers raise 
credit limits on existing accounts in order to prevent a consumer from 
obtaining any new credit cards. For these reasons, proposed comment 
51(a)-5 is amended to provide that in evaluating a consumer's current 
obligations to determine the consumer's ability to make the required 
payments, the card issuer need not assume that any credit line is fully 
utilized. In addition, the comment has been renumbered as comment 
51(a)(1)-5.
    Several industry commenters requested that the Board clarify that 
for joint accounts, a card issuer may consider the ability of both 
applicants or accountholders to make the required payments, instead of 
considering the ability of each consumer individually. In response, the 
Board is adopting new comment 51(a)(1)-6 to permit card issuers to 
consider joint applicants or joint accountholders collectively.
    Moreover, as discussed in the October 2009 Regulation Z Proposal, 
the Board did not propose to require card issuers to verify information 
before an account is opened or credit line is increased for several 
reasons. The Board noted that TILA Section 150 does not require 
verification of a consumer's ability to make required payments and that 
verification can be burdensome for both consumers and card issuers, 
especially when accounts are opened at point of sale or by telephone. 
Furthermore, as discussed in the October 2009 Regulation Z Proposal, 
the Board stated its belief that because credit card accounts are 
generally unsecured, card issuers will be motivated to verify 
information when either the information supplied by the applicant is 
inconsistent with the data the card issuers already have or obtain on 
the consumer or when the risk in the amount of the credit line warrants 
such verification.
    Many industry commenters expressed support for the Board's approach 
to provide card issuers with flexibility to determine instances when 
verification might be necessary and to refrain from strictly requiring 
verification or documentation in all instances. In contrast, consumer 
group commenters opposed this approach, stating that while there is no 
widespread evidence of income inflation in the credit card market, such 
problems do occur. One federal financial regulator commenter suggested 
that verification could be required in certain instances, such as when 
a consumer does not have a large credit file or when the credit line is 
large. The Board believes that given the inconvenience to consumers 
detailed in the October 2009 Regulation Z Proposal in providing 
documentation and the lack of evidence currently that consumers' 
incomes have been inflated in the credit card market on a widespread 
basis, a strict verification should not be required at this time.
51(a)(2) Minimum Periodic Payments
    Under proposed Sec.  226.51(a)(2)(i), card issuers would be 
required to use a reasonable method for estimating the required minimum 
periodic payments. Proposed Sec.  226.51(a)(2)(ii) provided a safe 
harbor that card issuers could use to comply with this requirement. 
Specifically, the proposed safe harbor required 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 proposed safe harbor also required 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. If the applicable minimum payment formula includes 
interest charges, the proposed safe harbor required 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. Finally, if the applicable minimum payment formula included 
fees, the proposed safe harbor permitted the card issuer to assume that 
no fees have been charged to the account.
    Consumer group commenters and many industry commenters generally 
agreed with the Board's approach and proposed safe harbor. A federal 
financial regulator and an industry commenter stated that the Board's 
emphasis on the minimum periodic payments was misplaced. The federal 
financial regulator commenter suggested that instead of considering a 
consumer's ability to make the minimum periodic payments based on full 
utilization of the credit line, the commenter recommended that card 
issuers be required to consider a consumer's ability to pay the entire 
credit line over a reasonable period of time, such as a year. The 
Credit Card Act requires evaluation of a consumer's ability to make the 
``required payments.'' Unless the terms of the contract provide 
otherwise, repayment of the balance on a credit card account over one 
year is not required. As discussed in the October 2009 Regulation Z 
Proposal, the minimum periodic payment is generally the amount that a 
consumer is required to pay each billing cycle under the terms of the 
contract. As a result, the Board believes that requiring card issuers 
to consider the consumer's ability to make the minimum periodic payment 
is the most appropriate interpretation of the requirements of the 
Credit Card Act.
    With respect to the Board's proposed safe harbor approach, some 
industry commenters suggested that the Board permit card issuers to 
estimate minimum periodic payments based on an average utilization rate 
for the product offered to the consumer. In the October 2009 Regulation 
Z Proposal, the Board acknowledged that requiring card issuers to 
estimate minimum periodic payments based on full utilization of the 
credit line could have the effect of overstating the consumer's likely 
required payments. The Board believes, however, that since card issuers 
may not know how a particular consumer may use the account, and the 
issuer is qualifying the consumer for a certain credit line, of which 
the consumer will have full use, an assumption that the entire credit 
line will be used is a proper way to estimate the consumer's payments 
under the safe harbor. Furthermore, the Board notes that the regulation 
requires that a card issuer use a reasonable method to estimate 
payments, and that Sec.  226.51(a)(2)(ii) merely provides a safe harbor 
for card issuers to comply with this standard, but that it may not be 
the only permissible way to comply with Sec.  226.51(a)(2)(i). Section 
226.51(a)(2)(ii) is therefore adopted as proposed with one minor 
clarifying change.
    As noted above, the proposed safe harbor under Sec.  
226.51(a)(2)(ii) required an issuer to use a minimum payment formula 
employed by the issuer for the product the issuer is considering

[[Page 7722]]

offering to the consumer or, in the case of an existing account, the 
minimum payment formula that currently applies to that account. The 
Board is adding new comment 51(a)(2)-1 to clarify that if an account 
has or may have a promotional program, such as a deferred payment or 
similar program, where there is no applicable minimum payment formula 
during the promotional period, the issuer must estimate the required 
minimum periodic payment based on the minimum payment formula that will 
apply when the promotion ends.
    Proposed Sec.  226.51(a)(2)(ii) also provided that if the 
applicable minimum payment formula includes interest charges, the 
proposed safe harbor required 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. The Board is 
adopting a new comment to clarify this provision. New comment 51(a)(2)-
2 provides that if the interest rate for purchases is or may be a 
promotional rate, the safe harbor requires the issuer to use the post-
promotional rate to estimate interest charges.
    As discussed in the October 2009 Regulation Z Proposal, the Board's 
proposed safe harbor further provided that if the minimum payment 
formula includes fees, the card issuer could assume that no fees have 
been charged because the Board believed that estimating the amount of 
fees that a typical consumer might incur could be speculative. Consumer 
group commenters suggested that the Board amend the safe harbor to 
require the addition of mandatory fees as such fees are not 
speculative. The Board agrees. As a result, Sec.  226.51(a)(2)(ii) 
requires that if a minimum payment formula includes the addition of any 
mandatory fees, the safe harbor requires the card issuer to assume that 
such fees are charged. In addition, the Board is adopting a new comment 
51(a)(2)-3 to provide guidance as to what types of fees are considered 
mandatory fees. Specifically, the comment provides that mandatory fees 
for which a card issuer is required to assume are charged include those 
fees that a consumer will be required to pay if the account is opened, 
such as an annual fee.
51(b) Rules Affecting Young Consumers
    The Board proposed in the October 2009 Regulation Z Proposal to 
implement new TILA Sections 127(c)(8) and 127(p), as added by Sections 
301 and 303 of the Credit Card Act, respectively, in Sec.  226.51(b). 
Specifically, proposed Sec.  226.51(b)(1) provided 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). The Board proposed Sec.  226.51(b)(2) to state 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 pursuant to proposed Sec.  226.51(b)(1)(i) 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.
    As discussed in the October 2009 Regulation Z Proposal, proposed 
Sec.  226.51(b) generally followed the statutory language with 
modifications to resolve ambiguities in the statute and to improve 
readability and consistency with Sec.  226.51(a). While many of these 
proposed changes did not generate much comment, certain of the Board's 
proposed modifications did prompt suggestions from commenters. First, 
consumer group commenters maintained that the Board's proposed language 
to limit the scope of Sec.  226.51(b)(1) to credit card accounts only 
was not consistent with the language in TILA Section 127(c)(8)(A). For 
all the reasons set forth in the October 2009 Regulation Z Proposal, 
however, the Board believes that the intent of TILA Section 127(c)(8), 
read as a whole, was to apply these requirements only to credit card 
accounts. Furthermore, as discussed in the October 2009 Regulation Z 
Proposal, limiting the scope of Sec.  226.51(b)(1) to credit card 
accounts only is consistent with the treatment of the related provision 
in TILA Section 127(p) regarding credit line increases, which applies 
solely to credit card accounts. Therefore, Sec.  226.51(b)(1) will 
apply only to credit card accounts as proposed.
    The Board also received comment regarding its proposal to make 
Sec.  226.51(b) consistent with Sec.  226.51(a) by requiring card 
issuers to determine whether a consumer under the age of 21, or any 
cosigner, guarantor, or joint applicant of a consumer under the age of 
21, has the means to repay debts incurred by the consumer by evaluating 
a consumer's ability to make the required payments under Sec.  
226.51(a). Therefore, proposed Sec.  226.51(b)(1)(i) and (ii) both 
referenced 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.
    Industry commenters were supportive of the Board's approach. 
Consumer group commenters, however, recommended that the Board require 
a more stringent evaluation of a consumer's ability to make the 
required payments for consumers under the age of 21 than the one 
required in Sec.  226.51(a). In particular, consumer group commenters 
suggested, for example, that card issuers be required to only consider 
income earned from wages or require a higher residual income or lower 
debt-to-income ratio for consumers less than 21 years old. A state 
regulatory agency commenter suggested that the Board require card 
issuers to verify income or asset information stated on an application 
submitted by a consumer under the age of 21. The Board declines to make 
the suggested changes. The Board believes that the heightened 
procedures already set forth in TILA Sections 127(c)(8) and 127(p), as 
adopted by the Board in Sec.  226.51(b), will provide sufficient 
protection for consumers less than 21 years old without unnecessarily 
impinging on their ability to obtain credit and build a credit history. 
Furthermore, the Board is concerned that the suggested changes could be 
inconsistent with the Board's Regulation B (12 CFR Part 202). For 
example, excluding certain income from consideration, such as alimony 
or child support, could conflict with 12 CFR Sec.  202.6(b)(5).
    The Board, however, is amending Sec.  226.51(b)(1) to clarify that, 
consistent with comments 51(a)(1)-4 and 51(a)(1)-5, card issuers need 
not obtain financial information directly from the consumer to evaluate 
the ability of the consumer, cosigner, guarantor, or joint applicant to 
make the required payments. The Board is also making organizational and 
other non-substantive changes to Sec.  226.51(b)(1) to improve 
readability and consistency. Section 226.51(b)(2) is adopted as 
proposed. The Board notes that for any credit line increase on an 
account of a consumer under the age of 21, the requirements of Sec.  
226.51(b)(2) are in addition to those in Sec.  226.51(a).
    In the October 2009 Regulation Z Proposal, the Board also proposed 
several comments to provide guidance to card issuers in complying with 
Sec.  226.51(b). Proposed comment 51(b)-1 clarified that Sec.  
226.51(b)(1) and (b)(2)

[[Page 7723]]

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. Some 
industry commenters suggested that the Board's final rule provide that 
the age of the consumer be determined at account opening as opposed to 
the consumer's age as of the date of submission of the application. The 
Board notes that TILA Section 127(c)(8)(B) applies to consumers who are 
under the age of 21 as of the date of submission of the application. 
Therefore, in compliance with the statutory provision, the Board is 
adopting comment 51(b)-1 as proposed.
    Proposed comment 51(b)-2 addressed 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. Consumer group commenters recommended that the Board require that 
card issuers obtain separate consent of a cosigner, guarantor, or joint 
accountholder to assume liability for debts incurred after the consumer 
has attained the age of 21. The Board believes that requiring separate 
consent is unnecessary and duplicative as card issuers requiring 
cosigners, guarantors, or joint accountholders to assume such liability 
will likely obtain a single consent at the time the account is opened 
for the cosigner, guarantor, or joint accountholder to assume liability 
on debt that is incurred before and after the consumer has turned 21. 
Proposed comment 51(b)-2 is adopted in final.
    The Board proposed 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 did 
not receive any comment on this provision, and the comment is adopted 
as proposed.
    Proposed comment 51(b)-4 explained 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 electronic applications. TILA Section 
127(c)(8) requires a consumer who has not attained the age of 21 to 
submit a written application, and TILA Section 127(p) requires a 
cosigner, guarantor, or joint accountholder to consent to a credit line 
increase in writing. As noted in the October 2009 Regulation Z 
Proposal, the Board believes that, consistent with the purposes of the 
E-Sign Act, applications submitted under TILA Section 127(c)(8) and 
consents under TILA Section 127(p), which must be provided in writing, 
may also be submitted electronically. See 15 U.S.C. 7001(a). 
Furthermore, since the submission of an application by a consumer or 
consent to a credit line increase by a cosigner, guarantor, or joint 
accountholder is not a disclosure to a consumer, the Board believes the 
consumer consent and other requirements necessary to provide consumer 
disclosures electronically pursuant to the E-Sign Act would not apply. 
The Board notes, however, that under the E-Sign Act, an electronic 
record of a contract or other record required to be in writing may be 
denied legal effect, validity or enforceability if such record is not 
in a form that is capable of being retained and accurately reproduced 
for later reference by all parties or persons who are entitled to 
retain the contract or other record. 15 U.S.C. 7001(e). Consumer group 
commenters recommended that the Board include this reference in the 
comment. The Board believes this is unnecessary, and comment 51(b)-4 is 
adopted as proposed with minor wording changes.
    Under proposed comment 51(b)(1)-1, creditors must comply with 
applicable rules in Regulation B (12 CFR Part 202) in evaluating an 
application to open a credit card account or credit line increase for a 
consumer under the age of 21. In the October 2009 Regulation Z 
Proposal, the Board noted that because 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).
    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. Therefore, 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)(i). Consequently, 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)(ii), 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).
    Several industry commenters requested the Board further clarify the 
interaction between Regulation B and Sec.  226.51(b). Some commenters 
suggested the Board state that certain provisions of Sec.  226.51(b) 
override provisions of Regulation B. The Board notes that issuers would 
not violate Regulation B by virtue of complying with Sec.  226.51(b). 
Therefore, the Board does not believe it is necessary to state that 
Sec.  226.51(b) overrides provisions of Regulation B.
    Furthermore, many industry commenters asked the Board to permit 
card issuers, in determining whether consumers under the age of 21 have 
the ``independent'' means to repay debts incurred, to consider a 
consumer's spouse's income. The Board believes that neither Regulation 
B nor Sec.  226.51(b) compels this interpretation. Pursuant to TILA 
Section 127(c)(8)(B), card issuers evaluating a consumer under the age 
of 21 under Sec.  226.51(b)(1)(ii), who is applying as an individual, 
must consider the consumer's independent ability. The Board notes, 
however, that in evaluating joint accounts, the card issuer may 
consider the collective ability of the joint applicants or joint 
accountholders to make the required payments under new comment 
51(a)(1)-6, as discussed above. Comment 51(b)(1)-1 is adopted as 
proposed.
    Proposed comment 51(b)(2)-1 provided 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 believed that Sec.  226.51(b)(2) would be 
redundant. An industry commenter requested the Board clarify situations 
in which this applies. For example, the commenter requested

[[Page 7724]]

whether comment 51(b)(2)-1 would apply if a consumer under the age of 
21 requests the credit line increase over the telephone, but 
subsequently passes the telephone to the cosigner, guarantor, or joint 
accountholder who is at least 21 years old to make the request after 
being told that they are not sufficiently old enough to do so. The 
Board believes this approach will be tantamount to an oral approval and 
would circumvent the protections of Sec.  226.51(b)(2). Consequently, 
the Board is modifying the proposed comment to clarify that it must be 
the cosigner, guarantor, or joint accountholder who is at least 21 
years old who initiates the request to increase the credit line.

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 proposed to implement new TILA Section 127(n) in 
Sec.  226.52(a).\31\
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    \31\ In a separate rulemaking, the Board will 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.
    In the October 2009 Regulation Z Proposal, the Board discussed two 
issues of statutory interpretation related to the implementation of new 
TILA Section 127(n). First, 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.'' (Emphasis added.) In 
the proposal, the Board acknowledged that 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, the Board stated that such a narrow reading 
would be inconsistent with the words ``any fees,'' which indicate that 
Congress intended the provision to apply to a broader range of fees. 
Furthermore, the Board expressed concern that 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, the Board noted 
that 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). In other words, if Congress had intended Section 
127(n)(1) to apply only to fees that are unconditional requirements of 
the account, there would have been no need to specifically exclude 
conditional fees such as late payment fees. For these reasons, the 
Board concluded that the best interpretation of new TILA Section 
127(n)(1) was to apply the 25 percent limitation to any fee that a 
consumer is required to pay with respect to the account (unless 
expressly excluded), even if the requirement only applies in certain 
circumstances.
    Consumer group commenters strongly supported this interpretation of 
new TILA Section 127(n)(1), while industry commenters strongly 
disagreed. In particular, institutions that do not issue subprime cards 
argued that Congress intended Section 127(n) to apply only to fees 
imposed on subprime cards with low credit limits and that it would be 
unduly burdensome to require issuers of credit card products with 
higher limits to comply. However, while new TILA Section 127(n) is 
titled ``Standards Applicable to Initial Issuance of Subprime or `Fee 
Harvester' Cards,'' nothing in the statutory text limits its 
application to a particular type of credit card. Instead, for the 
reasons discussed above, it appears that Congress intended

[[Page 7725]]

Section 127(n) to apply to a broad range of fees regardless of the type 
of credit card account. Although the practice of charging fees that 
represent a high percentage of the credit limit is generally limited to 
subprime cards at present, it appears that Congress intended Section 
127(n) to prevent this practice from spreading to other types of credit 
card products. Accordingly, although the Board understands that 
complying with Section 127(n) may impose a significant burden on card 
issuers, the Board does not believe that this burden warrants a 
different interpretation of Section 127(n).
    Second, in the proposal, the Board interpreted new TILA Section 
127(n)(1), which 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.'' The Board 
stated that, 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, this did not appear to be 
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. Accordingly, the Board interpreted 
Section 127(n)(1) 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). The Board did not receive significant comment on this 
interpretation, which is adopted in the final rule.
    Accordingly, in order to effectuate this purpose and to facilitate 
compliance, the Board uses its authority under TILA Section 105(a) to 
implement new TILA Section 127(n) as set forth below.
52(a)(1) General Rule
    Proposed Sec.  226.52(a)(1)(i) provided 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. Furthermore, 
in order to prevent card issuers from circumventing proposed Sec.  
226.52(a)(1)(i), proposed Sec.  226.52(a)(1)(ii) provided 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.
    Commenters generally supported the proposed rule. However, a 
federal banking agency requested that the Board clarify the proposed 
rule, expressing concern that, as proposed, Sec.  226.52(a)(1) could be 
construed to authorize card issuers to require consumers to pay an 
unlimited amount of fees so long as the total amount of fees charged to 
the account did not equal the 25 percent limit. This was not the 
Board's intent, nor does the Board believe that the proposed rule 
supports such an interpretation. Nevertheless, in order to avoid any 
potential uncertainty, the Board has revised Sec.  226.52(a)(1) to 
provide 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 the account is opened, the total amount of 
fees the consumer is required to pay with respect to the account during 
that year must not exceed 25 percent of the credit limit in effect when 
the account is opened.
    The Board has also reorganized and revised the proposed commentary 
for consistency with the revisions to Sec.  226.52(a)(1). Comment 
52(a)(1)-1 clarifies that Sec.  226.52(a)(1) applies if a card issuer 
charges any fees to a credit card account during the first year after 
the account is opened (unless the fees are specifically exempted by 
Sec.  226.52(a)(2)). Thus, if a card issuer charges a non-exempt fee to 
the account during the first year after account opening, Sec.  
226.52(a)(1) provides that the total amount of non-exempt fees the 
consumer is required to pay with respect to the account during the 
first year cannot exceed 25 percent of the credit limit in effect when 
the account is opened. The comment further clarifies that this 25 
percent limit applies to fees that the card issuer charges to the 
account as well as to fees that the card issuer requires the consumer 
to pay with respect to the account through other means (such as through 
a payment from the consumer to the card issuer or from another credit 
account provided by the card issuer). The comment also provides 
illustrative examples of the application of Sec.  226.52(a), including 
the examples previously provided in proposed comments 52(a)(1)(i)-1 and 
52(a)(1)(ii)-1.
    Proposed comment 52(a)(1)(i)-2 clarified that a card issuer that 
charges a fee to a credit card account that exceeds the 25 percent 
limit could comply with Sec.  226.52(a)(1) by waiving or removing the 
fee and any associated interest charges or crediting 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 could comply with Sec.  226.52(a)(1) by removing the fee and any 
interest charged on that fee at the end of the billing cycle.
    Some industry commenters expressed concern that, because fees are 
totaled at the end of the billing cycle, there would be circumstances 
in which their systems would not be able to identify a fee that exceeds 
the 25 percent limit in time to correct the account before the billing 
cycle ends (such as when the fee was charged late in the cycle). The 
Board is concerned that providing additional time will result in fees 
that exceed the 25 percent limit appearing on consumer's periodic 
statements. However, in order to facilitate compliance, the Board has 
revised the proposed comment to require card issuers to waive or remove 
the excess fee and any associated interest charges within a reasonable 
amount of time but no later than the end of the billing cycle following 
the billing cycle during which the fee was charged. For organizational 
purposes, the Board has also redesignated this comment as 52(a)(1)-2.
    Proposed comment 52(a)(1)(i)-3 clarified that, because the 
limitation in Sec.  226.52(a)(1) 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 was 
provided. For organizational purposes, this comment has been 
redesignated as 52(a)(1)-3.
    In addition, in response to comments from consumer groups, the 
Board has also provided guidance regarding decreases in credit limits 
during the first year after account opening. Consumer

[[Page 7726]]

groups expressed concern that card issuers could evade the 25 percent 
limitation by, for example, providing a $500 credit limit and charging 
$125 in fees for the issuance or availability of credit at account 
opening and then quickly reducing the limit to $200, leaving the 
consumer with only $75 of available credit. Although there are 
legitimate reasons for reducing a credit limit during the first year 
after account opening (such as concerns about fraud), the Board 
believes that, in these circumstances, it would be inconsistent with 
the intent of new TILA Section 127(n) to require the consumer to pay 
(or to allow the issuer to retain) any fees that exceed 25 percent of 
the reduced limit. Accordingly, proposed comment 52(a)(1)-3 clarifies 
that, if a card issuer decreases the credit limit during the first year 
after the account is opened, Sec.  226.52(a)(1) requires the card 
issuer to waive or remove any fees charged to the account that exceed 
25 percent of the reduced credit limit or to credit the account for an 
amount equal to any fees the consumer was required to pay with respect 
to the account that exceed 25 percent of the reduced credit limit 
within a reasonable amount of time but no later than the end of the 
billing cycle following the billing cycle during which the fee was 
charged. An example is provided.
52(a)(2) Fees Not Subject to Limitations
    Section 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), 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). The Board did not receive significant comment on 
Sec.  226.52(a)(2)(i), which is adopted as proposed.
    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 have created 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) illustrated 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 clarified 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 proposed comment listed 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 provided as examples of fees that 
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.
    Commenters generally supported proposed Sec.  226.52(a)(2)(ii) and 
proposed comments 52(a)(2)-1 and -2. Although one industry commenter 
suggested that the Board take a broader approach to identifying the 
fees that fall within the exception in Sec.  226.52(a)(2)(ii), the 
Board believes that such an approach would be inconsistent with the 
purposes of TILA Section 127(n). Accordingly, the Board adopts these 
aspects of the proposal.
    Finally, proposed comment 52(a)(2)-3 clarified 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 clarified that Sec.  
226.52(a) would not prohibit a card issuer 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. Consumer 
group commenters strongly supported this commentary. However, a federal 
banking agency requested that the Board clarify that a security deposit 
is an amount of funds transferred by a consumer to a card issuer at 
account opening that is pledged as security on the account. The Board 
has revised the proposed comment to include similar language. 
Otherwise, comment 52(a)(2)-3 is adopted as proposed.
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 proposed 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 cited 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.'' The Board 
did not receive significant comment on either the proposed regulation 
or the proposed commentary, both of which have been adopted as 
proposed.

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 has implemented amended TILA 
Section 164(b) in new Sec.  226.53.
    As an initial matter, however, the Board interprets 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

[[Page 7727]]

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. Commenters generally supported 
this aspect of the proposal.
53(a) General Rule
    The Board proposed to implement amended TILA Section 164(b)(1) in 
Sec.  226.53(a), which stated 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.\32\ Commenters generally supported Sec.  
226.53(a), which is adopted as proposed.
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    \32\ 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 pays $800 in excess of the required 
minimum periodic 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.
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    The Board also proposed comment 53-1, which clarified that 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 further clarified 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. The Board did not 
receive any significant comment on this guidance, which is adopted as 
proposed.
    Comment 53-2 clarified that 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 was 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.
    Industry commenters generally supported this guidance. However, 
consumer groups opposed it on the grounds that card issuers could 
misuse the flexibility to systematically vary the dates on which 
payments are allocated at the account level in order to generate higher 
interest charges. The Board agrees that such a practice would be 
inconsistent with the intent of comment 53-2. Accordingly, the Board 
has revised this comment to clarify that the day used by the card 
issuer to determine the applicable annual percentage rates and balances 
for purposes of Sec.  226.53 generally must be consistent from billing 
cycle to billing cycle, although the card issuer may adjust this day 
from time to time.
    Proposed comment 53-3 addressed the relationship between the 
dispute rights in Sec.  226.12(c) and the payment allocation 
requirements in proposed Sec.  226.53. This comment clarified 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 comment 12(c)-4. Based on comments 
from industry, the Board has revised the proposed comment to clarify 
that the same requirements apply with respect to amounts subject to 
billing error disputes under Sec.  226.13. The Board has also added 
illustrative examples.
    Proposed comment 53-4 addressed 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 
clarified that, in these circumstances, 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.\33\ The Board did not receive any significant comment on this 
aspect of the guidance, which is adopted as proposed.
---------------------------------------------------------------------------

    \33\ An example of how excess payments could be applied in these 
circumstances is provided in comment 53-5.iv.
---------------------------------------------------------------------------

    However, proposed comment 53-4 also clarified 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 Sec.  226.53 during that period of time rather than a 
balance with the rate at which interest accrues (the accrual rate).\34\ 
In the proposal, the Board noted

[[Page 7728]]

that 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. The Board further noted that this approach 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.
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    \34\ 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 Sec.  226.53 until July 1. In addition, for purposes 
of allocating pursuant to 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 
comment 53-5.v.
---------------------------------------------------------------------------

    However, the Board also acknowledged that treating the rate on this 
type of balance as zero could be disadvantageous for consumers in 
certain circumstances. Specifically, the Board noted that, if the rate 
for a deferred interest balance is treated as zero during the deferred 
interest period, consumers who wish to pay off that balance in 
installments over the course of the program would be prevented from 
doing so.
    In response to the proposal, the Board received a number of 
comments from industry and consumer groups raising concerns about 
prohibiting consumers from paying off a deferred interest or similar 
balance in monthly installments. Accordingly, as discussed below, the 
Board has revised Sec.  226.53(b) to address those concerns.
    Finally, proposed comment 53(a)-1 provided examples of allocating 
excess payments consistent with proposed Sec.  226.53. The Board has 
redesignated this comment as 53-5 for organizational purposes and 
revised the examples for consistency with the revisions to Sec.  
226.53(b).\35\
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    \35\ The 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 Accounts With Balances Subject to Deferred 
Interest or Similar Programs
    The Board proposed to implement amended TILA Section 164(b)(2) in 
Sec.  226.53(b), which provided 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.\36\ 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.
---------------------------------------------------------------------------

    \36\ 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 
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.
---------------------------------------------------------------------------

    As noted above, comments from industry and consumer groups raised 
concerns that the proposed rule would prohibit consumers who may lack 
the resources to pay off a deferred interest balance in one of the last 
two billing cycles of the deferred interest period from paying that 
balance off in monthly installments over the course of the period. 
These commenters generally urged the Board to permit card issuers to 
allocate payments consistent with a consumer's request when an account 
has a deferred interest or similar balance.
    Because the consumer testing conducted by the Board for the January 
2009 Regulation Z Rule indicated that disclosures do not enable 
consumers to understand sufficiently the effects of payment allocation 
on interest charges, the Board is concerned that permitting card 
issuers to allocate payments based on a consumer's request could create 
a loophole that would undermine the purposes of revised TILA Section 
164(b). For example, consumers who do not understand the effects of 
payment allocation could be misled into selecting an allocation method 
that will generally result in higher interest charges than applying 
payments first to the balance with the highest rate (such as a method 
under which payments are applied first to the oldest unpaid 
transactions on the account). For this reason, the Board does not 
believe that a general exception to Sec.  226.53(a) based on a 
consumer's request is warranted.
    However, in the narrow context of accounts with balances subject to 
deferred interest or similar programs, the Board is persuaded that the 
benefits of providing flexibility for consumers who are able to avoid 
deferred interest charges by paying off a deferred interest balance in 
installments over the course of the deferred interest period outweigh 
the risk that some consumers could make choices that result in higher 
interest charges than would occur under the proposed rule.
    Accordingly, pursuant to its authority under TILA Sec.  105(a) to 
make adjustments and exceptions in order to effectuate the purposes of 
TILA, the Board has revised proposed Sec.  226.53(b) to permit card 
issuers to allocate payments in excess of the minimum consistent with a 
consumer's request when the account has a balance subject to a deferred 
interest or similar program.\37\ Specifically, Sec.  226.52(b)(1) 
provides 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 
consistent with Sec.  226.53(a) except that, during the two billing 
cycles immediately preceding expiration of the specified period, the 
excess amount must be allocated first to the balance subject to the 
deferred interest or similar program and any remaining portion 
allocated to any other balances consistent with Sec.  226.53(a). In the 
alternative, Sec.  226.53(b)(2) provides that the card issuer may at 
its option allocate any

[[Page 7729]]

amount paid by the consumer in excess of the required minimum periodic 
payment among the balances on the account in the manner requested by 
the consumer.
---------------------------------------------------------------------------

    \37\ Although consumer group commenters urged the Board to 
require (rather than permit) card issuers to allocate consistent 
with a consumer's request, the Board understands that--while some 
card issuers currently have the systems in place to accommodate such 
requests--many do not. The Board further understands that card 
issuers without the ability to allocate payments based on a consumer 
request could not develop the systems to do so prior to February 22, 
2010. Although these issuers could presumably develop the necessary 
systems by some later date, the Board believes that the difficulties 
associated with making informed decisions regarding payment 
allocation are such that a requirement that all issuers develop the 
systems to accommodate consumer requests is not warranted. Instead, 
the Board has revised Sec.  226.53(b) to ensure that card issuers 
that currently accommodate consumer requests can continue to do so.
---------------------------------------------------------------------------

    The Board has revised the proposed commentary to Sec.  226.53(b) 
for consistency with the amendments to Sec.  226.53(b) and for 
organizational purposes. As an initial matter, the Board has 
redesignated proposed comment 53(b)-2 as comment 53(b)-1. Proposed 
comment 53(b)-2 clarified that Sec.  226.53(b) applies to deferred 
interest or similar programs 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. The 
proposed comment further clarified 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).\38\ In response to requests for 
guidance from commenters, the Board has revised this comment to clarify 
that Sec.  226.53(b) applies regardless of whether the consumer is 
required to make payments with respect to the balance subject to the 
deferred interest or similar program during the specified period. In 
addition, the Board has revised the comment to clarify that a temporary 
annual percentage rate of zero percent that applies for a specified 
period of time consistent with Sec.  226.55(b)(1) is not a deferred 
interest or similar program for purposes of Sec.  226.53(b) unless the 
consumer may be obligated to pay interest that accrues during the 
period if a balance is not paid in full prior to expiration of the 
period. Finally, in order to ensure consistent treatment of deferred 
interest programs in Regulation Z, the Board has clarified that, for 
purposes of Sec.  226.53, ``deferred interest'' has the same meaning as 
in Sec.  226.16(h)(2) and associated commentary.
---------------------------------------------------------------------------

    \38\ 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.
---------------------------------------------------------------------------

    For organizational purposes, the Board has redesignated proposed 
comment 53(b)-1 as comment 53(b)-2. Proposed comment 53(b)-1 clarified 
the application of 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 clarified 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. The Board 
did not receive any significant comment on this guidance, which has 
been revised for consistency with the revisions to Sec.  226.53(b).
    The Board has also adopted a new comment 53(b)-3 in order to 
clarify that Sec.  226.53(b) does not require a card issuer to allocate 
amounts paid by the consumer in excess of the required minimum periodic 
payment in the manner requested by the consumer, provided that the card 
issuer instead allocates such amounts consistent with Sec.  
226.53(b)(1). For example, a card issuer may decline consumer requests 
regarding payment allocation as a general matter or may decline such 
requests when a consumer does not comply with requirements set by the 
card issuer (such as submitting the request in writing or submitting 
the request prior to or contemporaneously with submission of the 
payment), provided that amounts paid by the consumer in excess of the 
required minimum periodic payment are allocated consistent with Sec.  
226.53(b)(1). Similarly, a card issuer that accepts requests pursuant 
to Sec.  226.53(b)(2) generally must allocate amounts paid by a 
consumer in excess of the required minimum periodic payment consistent 
with Sec.  226.53(b)(1) if the consumer does not submit a request or 
submits a request with which the card issuer cannot comply (such as a 
request that contains a mathematical error).
    Comment 53(b)-3 also provides illustrative examples of what does 
and does not constitute a consumer request for purposes of Sec.  
226.53(b)(2). In particular, the comment clarifies that a consumer has 
made a request for purposes of Sec.  226.53(b)(2) if the consumer 
contacts the card issuer and specifically requests that a payment or 
payments be allocated in a particular manner during the period of time 
that the deferred interest or similar program applies to a balance on 
the account. Similarly, a consumer has made a request for purposes of 
Sec.  226.53(b)(2) if the consumer completes a form or payment coupon 
provided by the card issuer for the purpose of requesting that a 
payment or payments be allocated in a particular manner and submits 
that form to the card issuer. Finally, a consumer has made a request 
for purposes of Sec.  226.53(b)(2) if the consumer contacts a card 
issuer and specifically requests that a payment that the card issuer 
has previously allocated consistent with Sec.  226.53(b)(1) instead be 
allocated in a different manner.
    In contrast, the comment clarifies that a consumer has not made a 
request for purposes of Sec.  226.53(b)(2) if the terms and conditions 
of the account agreement contain preprinted language stating that by 
applying to open an account or by using that account for transactions 
subject to a deferred interest or similar program the consumer requests 
that payments be allocated in a particular manner. Similarly, a 
consumer has not made a request for purposes of Sec.  226.53(b)(2) if 
the card issuer's on-line application contains a preselected check box 
indicating that the consumer requests that payments be allocated in a 
particular manner and the consumer does not deselect the box.\39\
---------------------------------------------------------------------------

    \39\ These examples are similar to examples adopted by the Board 
with respect to the affiliate marketing provisions of the Fair 
Credit Reporting Act. See 12 CFR 222.21(d)(4)(iii) and (iv).
---------------------------------------------------------------------------

    In addition, a consumer has not made a request for purposes of 
Sec.  226.53(b)(2) if the payment coupon provided by the card issuer 
contains preprinted language or a preselected check box stating that by 
submitting a payment the consumer requests that the payment be 
allocated in a particular manner. Furthermore, a consumer has not made 
a request for purposes of Sec.  226.53(b)(2) if the card issuer 
requires a consumer to accept a particular payment allocation method as 
a condition of using a deferred interest or similar program, making a 
payment, or receiving account services or features.

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

[[Page 7730]]

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 is implementing new TILA Section 
127(j) in Sec.  226.54.
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 (and therefore generally 
qualify for a grace period) but not the next month (and therefore 
generally 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, 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).
    In the October 2009 Regulation Z Proposal, the Board proposed to 
implement new TILA Section 127(j)(1)(A)'s prohibition on two-cycle 
billing in 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 proposed 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).\40\ Finally, proposed comment 54(a)(1)-4 
explained that Sec.  226.54(a)(1)(i) prohibits use of the two-cycle 
average daily balance computation method.
---------------------------------------------------------------------------

    \40\ 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. As discussed above, the Board has revised Sec.  
226.5(b)(2)(ii) by, among other things, moving the definition of 
grace period to Sec.  226.5(b)(2)(ii)(B). Accordingly, the Board has 
also made a corresponding revision to Sec.  226.54(a)(2).
---------------------------------------------------------------------------

    The Board did not receive significant comment on this proposed 
regulation and commentary. Accordingly, they are adopted as proposed.
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 proposed to implement this prohibition in Sec.  
226.54(a)(1)(ii), which states that, except as provided in 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 
did not receive significant comment on Sec.  226.54(a)(1)(ii), which is 
adopted as proposed.
    The Board also proposed comment 54(a)(1)-5, which clarified that 
card issuers are not required to use a particular method to comply with 
Sec.  226.54(a)(1)(ii) but provided an example of a method that is 
consistent with the requirements of Sec.  226.54(a)(1)(ii). 
Specifically, it stated 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 comment 54(a)(1)-6 along 
with other examples of the application of Sec.  226.54(a)(1)(i) and 
(ii). For the reasons discussed below, the Board has revised comments 
54(a)(1)-5 and -6 to clarify the circumstances in which Sec.  226.54 
applies. Otherwise, these comments are adopted as proposed.
    In addition to the commentary clarifying the specific prohibitions 
in Sec.  226.54(a)(1)(i) and (ii), the Board also proposed to adopt 
three comments clarifying the general scope and applicability of Sec.  
226.54. First, proposed comment 54(a)(1)-1 clarified 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

[[Page 7731]]

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 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). Commenters generally supported this interpretation, 
which the Board has adopted in this final rule.
    The Board also proposed to adopt comment 54(a)(1)-2, which 
clarified that 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 stated that, 
when a card issuer offers a deferred interest or similar promotional 
program, Sec.  226.54 does not prohibit the card issuer from charging 
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 as 
they are currently constituted by prohibiting the card issuer from 
charging any interest based on any portion of the deferred interest 
balance that is paid during the deferred interest period. 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)).
    Comments from credit card issuers, retailers, and industry groups 
strongly supported this interpretation. However, consumer group 
commenters argued that new TILA Section 127(j) should be interpreted to 
prohibit the interest charges on amounts paid within a deferred 
interest and similar period. For the reasons discussed above, the Board 
believes that such a prohibition would be inconsistent with Congress' 
intent. Accordingly, the Board adopts the interpretation in proposed 
comment 54(a)(1)-2.
    In response to requests for clarification from industry commenters, 
the Board has also made a number of revisions to comments 54(a)(1)-1 
and -2 in order to clarify the circumstances in which Sec.  226.54 
applies. As discussed below, these clarifications are intended to 
preserve current industry practices with respect to grace periods and 
the waiver of trailing or residual interest that are generally 
beneficial to consumers. First, the Board has generally revised the 
commentary to clarify that a card issuer is permitted to condition 
eligibility for the grace period on the payment of certain transactions 
or balances within the specified period, rather than requiring 
consumers to pay in full all transactions or balances on the account 
within that period. The Board understands that, for example, some card 
issuers permit a consumer to retain a grace period on purchases by 
paying the purchase balance in full, even if other balances (such as 
balances subject to promotional rates or deferred interest programs) 
are not paid in full. Insofar as this practice enables consumers to 
avoid interest charges on purchases without paying the entire account 
balance in full, it appears to be advantageous for consumers.
    Second, the Board has revised comment 54(a)(1)-1 to clarify that 
Sec.  226.54 does not limit the imposition of finance charges with 
respect to a transaction when the consumer is not eligible for a grace 
period on that transaction at the end of the billing cycle in which the 
transaction occurred. This clarification is intended to preserve a 
grace period eligibility requirement used by some card issuers that is 
more favorable to consumers than the requirement used by other issuers. 
Specifically, the Board understands that, while most credit card 
issuers only require consumers to pay the relevant balance in full in 
one billing cycle in order to be eligible for the grace period, some 
issuers require consumers to pay in full for two consecutive cycles. 
While either requirement is permissible under Sec.  226.54,\41\ the 
less restrictive requirement appears to be more beneficial to 
consumers.
---------------------------------------------------------------------------

    \41\ Consumer group commenters argued that the Board should 
prohibit the more restrictive eligibility requirement. However, as 
discussed above, it does not appear that Congress intended to limit 
card issuers' ability to place conditions on grace period 
eligibility.
---------------------------------------------------------------------------

    However, many industry commenters expressed concern that, under the 
less restrictive requirement, a consumer could be considered eligible 
for a grace period in every billing cycle--and therefore Sec.  226.54 
would apply--regardless of whether the consumer had ever paid the 
relevant balance in full in a previous cycle. Because new TILA Section 
127(j) does not mandate provision of a grace period, the Board believes 
that interpreting Sec.  226.54 as applying in every billing cycle 
regardless of whether the consumer paid the previous cycle's balance in 
full would be inconsistent with Congress' intent. Furthermore, although 
this interpretation could be advantageous for consumers if card issuers 
retained the less restrictive eligibility requirement, the Board is 
concerned that card issuers would instead convert to the more 
restrictive approach, which would ultimately harm consumers. 
Accordingly, the Board has revised the commentary to clarify that a 
card issuer that employs the less restrictive eligibility requirement 
is not subject to Sec.  226.54 unless the relevant balance for the 
prior billing cycle has been paid in full before the beginning of the 
current cycle. The Board has also added illustrative examples to 
comment 54(a)(1)-1.
    Third, the Board has revised comment 54(a)(1)-2 to clarify that the 
practice of waiving or rebating finance charges on an individualized 
basis (such as in response to a consumer's request) and the practice of 
waiving or rebating trailing or residual interest do not constitute 
provision of a grace period for purposes of Sec.  226.54. The Board 
believes that these practices are generally beneficial to consumers. In 
particular, the Board understands that, when a consumer is not eligible 
for a grace period at the start of a billing cycle, many card issuers 
waive interest that accrues during that billing cycle if the consumer 
pays the relevant balance in full by the payment due date. For reasons 
similar to those discussed above, industry commenters expressed concern 
that waiving interest in these circumstances could be construed as 
providing a grace period regardless of whether the relevant balance for 
the prior cycle was paid in full. Accordingly, the revisions to comment 
54(a)(1)-2 are intended to encourage issuers to continue waiving or 
rebating

[[Page 7732]]

interest charges in these circumstances. Illustrative examples are 
provided.
    However, consumer group commenters also raised concerns about an 
emerging practice of establishing interest waiver or rebate programs 
that are similar in many respects to grace periods. Under these 
programs, all interest accrued on purchases will be waived or rebated 
if the purchase balance at the end of the billing cycle during which 
the purchases occurred is paid in full by the following payment due 
date. The Board is concerned that these programs may be structured to 
avoid the requirements of new TILA Section 127(j) and Sec.  226.54 
(particularly the prohibition on imposing finance charges on amounts 
paid during a grace period). Accordingly, pursuant to its authority 
under TILA Section 105(a) to prevent evasion, the Board clarifies in 
comment 54(a)(1)-2 that this type of program is subject to the 
requirements of Sec.  226.54. An illustrative example is provided.
    Finally, proposed comment 54(a)(1)-3 clarified 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 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 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.
    Consumer group commenters argued that credit card issuers should be 
required to allocate payments in a manner that preserves the grace 
period. However, the Board is not persuaded that, as a general matter, 
this approach would necessarily be more advantageous for consumers than 
paying down the balance with the highest annual percentage rate. 
Furthermore, the payment allocation requirements in revised TILA 
Section 164(b) are mandatory in all circumstances, whereas the 
limitations on the imposition of finance charges in new TILA Section 
127(j) apply only when the card issuer chooses to provide a grace 
period. Therefore, in circumstances where, for example, a card issuer 
must choose between allocating a payment to the balance with the 
highest rate (which the Credit Card Act requires) or preserving a grace 
period (which the Credit Card Act does not require), the Board believes 
it is appropriate that the payment allocation requirements control. 
Accordingly, comment 54(a)(1)-3 is adopted as proposed.
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 proposed to implement these 
exceptions in Sec.  226.54(b).
    The Board interpreted 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) permitted 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 proposed 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.
    The Board did not receive significant comment on this aspect of the 
proposal. Accordingly, Sec.  226.54(b) is adopted as proposed.

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 is 
implementing 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).\42\ 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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    \42\ 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

[[Page 7733]]

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 has amended 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, 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.\43\
---------------------------------------------------------------------------

    \43\ 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).
---------------------------------------------------------------------------

    Accordingly, the Board proposed 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).\44\ Although consumer groups expressed 
concern that card issuers might develop new fees in order to evade the 
prohibition on applying increased fees to existing balances, the Board 
believes that these categories of fees are sufficiently broad to 
address any attempts at circumvention.
---------------------------------------------------------------------------

    \44\ As discussed below with respect to 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 prohibited 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. As 
explained in the proposal, 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. The Board did not receive significant comment on this aspect of 
the proposal. Accordingly, 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 provided examples of the general 
application of Sec.  226.55(a) and the exceptions in Sec.  226.55(b). 
The Board has clarified these examples but no substantive change is 
intended. 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 clarified 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. The Board has revised 
this comment to clarify that any loss of a grace period must also be 
consistent with the requirements for mailing or delivering periodic 
statements in Sec.  226.5(b)(2)(ii)(B). Otherwise, it is adopted as 
proposed.
55(b) Exceptions
    Revised TILA Section 171(b) lists the exceptions to the general 
prohibition in revised Section 171(a). Similarly, Sec.  226.55(b) lists 
the exceptions to the general prohibition in Sec.  226.55(a). In 
addition, 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. 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. The 
Board did not receive significant comment on the prefatory language in 
Sec.  226.55(b) or on comment 55(b)-1, which are adopted as proposed. 
Similarly, except as noted below, comments 55(b)-2 through -6 are 
adopted as proposed.
    Proposed comment 55(b)-2 addressed 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 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.
    Commenters generally supported this guidance, but requested 
additional clarification regarding mid-cycle increases. Because these 
increases can occur as a result of the interaction between the 
exceptions in Sec.  226.55(b) and the 45-day notice requirements in 
Sec.  226.9(c) and (g), the Board has incorporated into comment 55(b)-2 
the

[[Page 7734]]

guidance provided in proposed comment 55(b)-6 regarding that 
interaction.\45\ Specifically, proposed comment 55(b)-6 stated 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 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). The final rule 
adopts this guidance--with illustrative examples--in comment 55(b)-2.
---------------------------------------------------------------------------

    \45\ As a result, proposed comment 55(b)-6 is not adopted in 
this final rule.
---------------------------------------------------------------------------

    In addition, proposed comment 55(b)-6 clarified 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. In 
response to requests from commenters for further clarification, the 
Board has added this guidance to comment 55(b)-2 and adopted additional 
guidance addressing the application of different balance computation 
methods when an increased rate goes into effect in the middle of a 
billing cycle.
    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. Comment 55(b)-3 is adopted as 
proposed, although the Board has made non-substantive clarifications 
and added additional examples in response to comments regarding the 
application of Sec.  226.55 when an existing temporary rate is extended 
and when a default occurs before a temporary rate expires.
    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,'' 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, comment 55(b)-4 clarifies that when a transaction occurred 
for purposes of Sec.  226.55 is generally determined by the date of the 
transaction.\46\ 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 clarifies 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 clarifies 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 comment 55(b)(3)-4.iii.
---------------------------------------------------------------------------

    \46\ 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.
---------------------------------------------------------------------------

    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.\47\ 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.
---------------------------------------------------------------------------

    \47\ 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.
---------------------------------------------------------------------------

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 is permitted to increase the 
rate on the purchase balance to 15% after six months.
    The Board proposed to implement 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 in Sec.  
226.55(b)(1). As a general matter, commenters supported or did not 
address proposed Sec.  226.55(b)(1) and its commentary. Accordingly, 
except as discussed below, they are adopted as proposed.\48\
---------------------------------------------------------------------------

    \48\ Some industry commenters requested that the Board expand 
Sec.  226.55(b)(1) to apply to increases in fees to a pre-disclosed 
amount after a specified period of time. However, as discussed above 
with respect to Sec.  226.9(c) and (h), the Board believes that such 
an exception would be inconsistent with the Credit Card Act. In 
addition, some industry commenters requested that the Board exclude 
promotional programs under which no interest is charged for a 
specified period of time. However, the Board believes that, for 
purposes of Sec.  226.55, these programs do not differ in any 
material way from programs that offer annual percentage rate of 0% 
for a specified period of time.

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[[Page 7735]]

    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 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 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 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 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 Sec.  226.55(b)(4). Thus, the Board 
has applied 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.
    Section 226.55(b)(1)(i) implements the requirement in revised TILA 
Section 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. 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 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, 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).
    Section 226.55(b)(1)(ii) implements 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, 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. 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 Sec.  
226.55(b)(1)(ii)(A), the card issuer cannot 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).
    Second, 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), Sec.  226.55(b)(1)(ii)(B) 
ensures 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, 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 Sec.  226.55(b)(1)(ii)(A), (B), and (C) 
are provided in comments 55(a)-1 and 55(b)-3.
    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, comment 55(b)(1)-2 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) permits 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) does 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

[[Page 7736]]

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 card issuer 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 card issuer 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.
    As a general matter, commenters supported the guidance in comment 
55(b)(1)-2. Some industry commenters argued that the six-month 
requirement should not apply when the temporary rate is limited to a 
particular transaction, but the Board finds no support for such an 
exclusion in new TILA Section 172(b). Other industry commenters argued 
that, even if a temporary rate is limited to a particular transaction, 
the six-month period required by Sec.  226.55(b)(1) should always begin 
once the terms have been disclosed and the rate is available to 
consumers. However, because temporary rates that are limited to 
particular transactions are frequently offered in retail settings, the 
Board is concerned that many consumers would not receive the benefit of 
the six-month period mandated by Section 172(b) if that period began 
when the rate was available.
    For example, assume that a temporary rate of 0% is available on the 
purchase of a television from a particular retailer beginning on 
January 1. If the six-month period begins on January 1, a consumer who 
purchases a television on January 1 will receive the benefit of 0% rate 
for six months. However, a consumer who purchases a television on June 
1 will only receive the benefit of the 0% rate for one month. As 
discussed above, the Board believes that, as a general matter, the 
benefits of temporary rates that can be used for multiple transactions 
sufficiently outweigh the fact that a consumer will not receive the 
temporary rate for the full six months on every transaction and 
therefore justify interpreting the six-month period in new TILA Section 
172(b) as beginning when the rate becomes available. However, when the 
temporary rate applies only to a single transaction, the Board believes 
that Section 172(b) requires the card issuer to apply the temporary 
rate to that transaction for at least six months.
    Although some industry commenters cited the operational difficulty 
of tracking transaction-specific expiration dates for temporary rates, 
the Board notes that several card issuers do so today. Furthermore, as 
discussed in comment 55(b)-2, a card issuer is not required to increase 
the rate precisely six months after the date of the transaction. 
Instead, assuming monthly billing cycles, a card issuer could, for 
example, use a single expiration date of July 31 for all temporary rate 
transactions that occur during the month of January (although this 
would require the card issuer to extend the temporary rate for up to a 
month). Accordingly, in this respect, comment 55(b)(1)-2 is adopted as 
proposed.\49\
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    \49\ However, in order to address confusion regarding the 
application of comment 55(b)(1)-2 to balance transfer offers, the 
Board has added an example clarifying that the six-month period for 
temporary rates that apply to multiple balance transfers begins once 
the terms have been disclosed and the rate is available to 
consumers. The Board has also made non-substantive clarifications to 
the examples in comment 55(b)(1)-2.
---------------------------------------------------------------------------

    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 Sec.  226.54, the Board does not believe that the 
Credit Card Act was intended to ban properly-disclosed deferred 
interest programs. Accordingly, 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, Sec.  
226.55(b)(1) requires that the deferred interest or similar period be 
at least six months. Furthermore, prior to the commencement of the 
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 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.
    Some industry commenters requested that the Board exclude deferred 
interest and similar programs from the six-month requirement in Sec.  
226.55(b)(1). However, because the Board has concluded that these 
programs should be treated as promotional programs for purposes of 
revised TILA Section 171, the Board does believe there is a basis for 
excluding these programs from the six-month requirement in new TILA 
Section 172(b). However, in order to ensure consistent treatment of 
deferred interest programs across Regulation Z, the Board has revised 
comment 55(b)(1)-3 to clarify that ``deferred interest'' has the same 
meaning as in Sec.  226.16(h)(2) and associated commentary. In 
addition, the Board has added an example clarifying the application of 
the exception in Sec.  226.55(b)(4) for accounts that are more than 60 
days delinquent to deferred interest and similar programs.
    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. Some industry commenters 
requested that, when a reduced rate is provided to employees of a 
business, the Board permit application of an increased rate to existing 
balances when employment ends. However, the Board believes that such an 
exception would be inconsistent with revised TILA Section 171(b)(1) 
because it is based on a contingent event rather than a specified 
period of time.
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

[[Page 7737]]

and is available to the general public.'' The Board proposed 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. Section 226.55(b)(2) is adopted as proposed.
    The proposed commentary to Sec.  226.55(b)(2) was 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 clarified 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. This comment is generally adopted as proposed, 
although the Board has clarified that that changes to the day on which 
index values are measured are permitted from time to time. As discussed 
below, systematic changes in the date to capture the highest possible 
index value would be inconsistent with Sec.  226.55(b)(2).
    Proposed comment 55(b)(1)-2 further clarified 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 clarified 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. These comments are adopted as proposed, except 
that, as discussed below, the Board has provided additional 
clarification in comment 55(b)(2)-2 regarding what constitutes 
exercising control over the operation of an index for purposes of Sec.  
226.55(b)(2).
    Consumer groups and a member of Congress raised concerns about two 
industry practices that, in their view, exercise control over the 
variable rate in a manner that is inconsistent with revised TILA 
Section 171(b)(2). First, they noted that many card issuers set minimum 
rates or ``floors'' below which a variable rate cannot fall even if a 
decrease would be consistent with a change in the applicable index. For 
example, assume that a card issuer offers a variable rate of 17%, which 
is calculated by adding a margin of 12 percentage points to an index 
with a current value of 5%. However, the terms of the account provide 
that the variable rate will not decrease below 17%. As a result, the 
variable rate can only increase, and the consumer will not benefit if 
the value of the index falls below 5%. The Board agrees that this 
practice is inconsistent with Sec.  226.55(b)(2). Accordingly, the 
Board has revised comment 55(b)(2)-2 to clarify that a card issuer 
exercises control over the operation of the index if the variable rate 
based on that index is subject to a fixed minimum rate or similar 
requirement that does not permit the variable rate to decrease 
consistent with reductions in the index.\50\
---------------------------------------------------------------------------

    \50\ However, because there is no disadvantage to consumers, 
comment 55(b)(2)-2 clarifies that card issuers are permitted to set 
fixed maximum rates or ``ceilings'' that do not permit the variable 
rate to increase consistent with increases in an index.
---------------------------------------------------------------------------

    The second practice raised by consumer groups and a member of 
Congress relates to adjusting or resetting variable rates to account 
for changes in the index. Typically, card issuers do not reset variable 
rates on a daily basis. Instead, card issuers may reset variable rates 
monthly, every two months, or quarterly. When the rate is reset, some 
card issuers calculate the new rate by adding the margin to the value 
of the index on a particular day (such as the last day of a month or 
billing cycle). However, some issuers calculate the variable rate based 
on the highest index value during a period of time (such as the 90 days 
preceding the last day of a month or billing cycle). Consumer groups 
and a member of Congress argued that the latter practice is 
inconsistent with Sec.  226.55(b)(2) insofar as the consumer can be 
prevented from receiving the benefit of decreases in the index.
    The Board agrees that a card issuer exercises control over the 
operation of the index if the variable rate can be calculated based on 
any index value during a period of time. Accordingly, the Board has 
revised comment 55(b)(2)-2 to clarify that, if the terms of the account 
contain such a provision, the card issuer cannot apply increases in the 
variable rate to existing balances pursuant to Sec.  226.55(b)(2). 
However, the comment also clarifies that a card issuer can adjust the 
variable rate based on the value of the index on a particular day or, 
in the alternative, the average index value during a specified period.
    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, 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. This comment is 
adopted as proposed.
    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. Consumer group commenters argued that 
the Board should prohibit issuers from converting a variable rate to a 
non-variable rate when the index used to calculate the variable rate 
has reached its peak value. However, it would be difficult or 
impossible to develop workable standards for determining when a 
variable rate has reached its peak value or for distinguishing between 
conversions that are done for legitimate reasons and those that are 
not. Furthermore, as the consumer group commenters acknowledged, non-
variable rates can be beneficial to consumers insofar as they provide 
increased predictability regarding the cost of credit. Accordingly, 
this comment is adopted as proposed.
    Proposed comment 55(b)(2)-6 clarified 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 clarified 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.

[[Page 7738]]

    Consumer group commenters raised concerns that card issuers could 
substitute indices in a manner that circumvents the requirements of 
Sec.  226.55(b)(2). Because comment 55(b)(2)-6 addresses the narrow 
circumstance in which an index becomes unavailable, the Board does not 
believe there is a significant risk of abuse. Indeed, this comment is 
substantively similar to long-standing guidance provided by the Board 
with respect to HELOCs (comment 5b(f)(3)(ii)-1), and the Board is not 
aware of any abuse in that context. Accordingly, the Board does not 
believe that revisions to comment 55(b)(2)-6 are warranted at this 
time.
55(b)(3) Advance Notice Exception
    Section 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, 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, 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), 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 has adopted 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, 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.
    Finally, 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.
    The Board did not receive significant comment regarding Sec.  
226.55(b)(3). Thus, the final rules adopt Sec.  226.55(b)(3) as 
proposed. Similarly, except as discussed below, the Board has generally 
adopted the commentary to Sec.  226.55(b)(3) as proposed, although the 
Board has made some non-substantive clarifications.
    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, 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.
    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 distinguishes 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 clarifies 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 applies to the opening of 
the second account.\51\
---------------------------------------------------------------------------

    \51\ 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 proposed a 30-
day period in comment 55(b)(3)-3. The Board did not receive 
additional comment on this issue. Accordingly, the 30-day period is 
adopted in the final rule.

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[[Page 7739]]

    In contrast, the comment clarifies 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 also 
clarifies 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) does not apply. However, when a 
substitution, replacement or consolidation occurs during the first year 
after account opening, comment 55(b)(3)-3.ii.B clarifies that the card 
issuer may not increase an annual percentage rate, fee, or charge in a 
manner otherwise prohibited by Sec.  226.55.\52\
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    \52\ 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).
---------------------------------------------------------------------------

    Comment 55(b)(3)-4 provides illustrative examples of the 
application of the exception in proposed Sec.  226.55(b)(3). Comment 
55(b)(3)-5 contains a cross-reference to 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 has implemented this exception in Sec.  226.55(b)(4). The 
additional notice requirements in revised TILA Section 171(b)(4)(A) are 
set forth in 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 Sec.  226.55(b)(4)(ii), although the Board proposed 
to make four adjustments to the statutory requirement pursuant to its 
authority under TILA Section 105(a) to make adjustments to effectuate 
the purposes of TILA and to facilitate compliance therewith.
    First, proposed Sec.  226.55(b)(4)(ii) interpreted the requirement 
that the 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 increased rate, fee, 
or charge will cease to apply once the consumer has met the statutory 
requirements. 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 or cessation. The Board did not receive significant comment 
on this aspect of the proposal, which is adopted in the final rule.
    Second, proposed Sec.  226.55(b)(4)(ii) provided 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. The Board believes that shifting the focus 
from the number of months to the number of on-time payments provides 
more specificity and clarity for both consumers and card issuers as to 
what is required to obtain the reduction. Because credit card accounts 
typically require payment on a monthly basis,\53\ a consumer who makes 
six consecutive on-time payments will also generally have paid on time 
for six months. However, card issuers are permitted to adjust their due 
dates and billing cycles from time to time,\54\ which could create 
uncertainty regarding whether a consumer has complied with the 
statutory requirement to make on-time payments during the six-month 
period. The Board did not receive significant comment on this proposed 
adjustment. Accordingly, because the Board believes that this 
adjustment to TILA Section 171(b)(4) will facilitate compliance with 
that provision, it is adopted in the final rule.
---------------------------------------------------------------------------

    \53\ Although some creditors use quarterly billing cycles for 
other open-end products, the Board is not aware of any creditor that 
does so with respect to credit card accounts under open-end (not 
home-secured) consumer credit plans.
    \54\ See, e.g., comments 2(a)(4)-3 and 7(b)(11)-7.
---------------------------------------------------------------------------

    Third, proposed Sec.  226.55(b)(4)(ii) applied to the six 
consecutive required minimum periodic payments received on or before 
the payment due date beginning with the first payment due following the 
effective date of the increase. 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 comment 55(b)(4)-3 
(which is discussed below), Sec.  226.55(b)(4)(ii) does 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. The Board did not receive 
significant comment on this interpretation, which is adopted in the 
final rule.
    Fourth, proposed Sec.  226.55(b)(4)(ii) provided 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 Sec.  226.55(b)(1)(ii)(B) and

[[Page 7740]]

Sec.  226.55(b)(3)(ii). As above, the Board did not receive significant 
comment on this aspect of the proposal, which is adopted in the final 
rule.
    Accordingly, for the reasons discussed above, Sec.  226.55(b)(4) is 
adopted as proposed. Similarly, except as discussed below, the Board 
has adopted the commentary to Sec.  226.55(b)(4) as proposed (with 
certain non-substantive clarifications).
    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) does 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) 
applies 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, Sec.  226.9(g)(3)(i)(B) requires 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, 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).
    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 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. As discussed above with respect to 
comment 55(b)-2, the Board understands that it may be operationally 
difficult for some card issuers to reduce a rate, fee, or charge in the 
middle of a billing cycle. Accordingly, this comment is consistent with 
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\
---------------------------------------------------------------------------

    \55\ In response to requests for clarification, the Board has 
added an example to comment 55(b)(4)-3 illustrating the application 
of Sec.  226.55(b)(4)(ii) when a consumer qualifies for a reduction 
in rate while a temporary rate is still in effect. In addition, the 
Board has added a cross-reference to comment 55(b)(1)-3, which 
provides an illustrative example of the application of Sec.  
226.55(b)(4) to deferred interest or similar programs.
---------------------------------------------------------------------------

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 [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 proposed to implement this exception in Sec.  
226.55(b)(5). The notice requirements in revised Section 171(b)(3)(B) 
were 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 was set forth in proposed Sec.  226.55(b)(5)(ii). 
Section 226.55(b)(5) is generally adopted as proposed, although--as 
discussed below--the Board has revised Sec.  226.55(b)(5)(i) and 
comment 55(b)(5)-2 for consistency with the revisions to the notice 
requirements for workout and temporary hardship arrangements in Sec.  
226.9(c)(2)(v)(D). Otherwise, the commentary to Sec.  226.55(b)(5) is 
adopted as 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

[[Page 7741]]

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).\56\
---------------------------------------------------------------------------

    \56\ The definition of ``protected balance'' and the permissible 
repayment methods for such a balance are discussed in detail below 
with respect to Sec.  226.55(c).
---------------------------------------------------------------------------

    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)-
10 (formerly 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 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. 
The Board has revised the disclosure requirement in Sec.  
226.55(b)(5)(i) and the guidance in comment 55(b)(5)-2 for consistency 
with the revisions to Sec.  226.9(c)(2)(v)(D), which permit creditors 
to disclose the terms of the workout or temporary hardship arrangement 
orally by telephone, provided that the creditor mails or delivers a 
written disclosure of the terms as soon as reasonably practicable after 
the oral disclosure is provided.
    Similar to the commentary to Sec.  226.55(b)(4), 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 Sec.  226.55(b)(2)). Finally, comment 55(b)(5)-4 
provides illustrative examples of the application of this 
exception.\57\
---------------------------------------------------------------------------

    \57\ In response to requests for clarifications, the Board has 
revised comment 55(b)(5)-4 to provide an example of the application 
of Sec.  226.55(b)(5) to fees.
---------------------------------------------------------------------------

55(b)(6) Servicemembers Civil Relief Act Exception
    In the October 2009 Regulation Z Proposal, the Board proposed 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).\58\
---------------------------------------------------------------------------

    \58\ 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.
    Nevertheless, 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 proposed 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 proposed rule would not have permitted the card issuer 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 did not propose 
a corresponding exception to Sec.  226.9.
    Commenters were generally supportive of proposed Sec.  
226.55(b)(6). Accordingly, it is adopted as proposed. However, although 
industry commenters argued that a similar exception should be adopted 
in Sec.  226.9(c), the Board continues to believe--as discussed above 
with respect to Sec.  226.9(c)--that consumers who leave military 
service should receive 45 days advance notice of an increase in rate.
    The Board has also adopted the commentary to Sec.  226.55(b)(6) as 
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 Sec.  226.55(b)(4) and (b)(5). An illustrative 
example is provided in 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

[[Page 7742]]

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, Sec.  226.55(c)(1) defines the balances subject to the 
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. The Board did not receive significant 
comment on Sec.  226.55(c)(1), which is adopted as proposed.
    Comment 55(c)(1)-1 provides an illustrative example of a protected 
balance. Comment 55(c)(1)-2 clarifies 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. These comments are adopted 
as 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) would have implemented 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 proposed to move these restrictions 
to Sec.  226.55(c)(2). The Board did not propose to substantively alter 
the repayment methods in Sec.  226.9(h)(2)(iii), except that the 
repayment methods in Sec.  226.55(c)(2) focused 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)). The Board did 
not receive significant comment on Sec.  226.55(c)(2), which is adopted 
as proposed.
    Similarly, for the reasons discussed above with respect to Sec.  
226.9(h), the Board proposed to move the commentary clarifying the 
application of the repayment methods from 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 
clarified 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 provided an illustrative 
example. These comments are adopted as proposed.
55(d) Continuing Application of Sec.  226.55
    Pursuant to its authority under TILA Section 105(a), the Board 
proposed to adopt Sec.  226.55(d), which provided 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. As 
discussed below, Sec.  226.55(d) and its commentary are adopted as 
proposed.
    Because the protections in revised TILA Section 171 and new TILA 
Section 172 cannot be waived or forfeited, 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).
    Section 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

[[Page 7743]]

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.\59\ 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). 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.
---------------------------------------------------------------------------

    \59\ Thus, as discussed in the 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 generally 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 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).
---------------------------------------------------------------------------

    Section 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). 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 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.
    Section 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).
    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 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 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.
    Consumer groups and some industry commenters supported proposed 
Sec.  226.55(d). However, the Board understands from industry comments 
received regarding both the May 2009 and October 2009 proposals that 
drawing a 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 
those proposals, 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. The comments opposing Sec.  226.55(d) do not lead the Board to 
a different understanding. Accordingly, the Board continues to believe 
that Sec.  226.55(d) will benefit consumers overall.

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.\60\ 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

[[Page 7744]]

increase, in some cases up to the default, or penalty, rate on the 
account.
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    \60\ 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.
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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 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 implementing 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) defined ``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. No comments were received on the proposed 
definition and it is adopted as proposed. The 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 card issuer that may cause the consumer to exceed the 
credit limit.\61\ See, however, Sec.  226.56(j)(4), discussed below.
---------------------------------------------------------------------------

    \61\ As discussed below, Sec.  226.56 and the accompanying 
commentary have been revised to refer to a ``card issuer'' in place 
of ``creditor'' to reflect the scope of accounts to which the rule 
applies.
---------------------------------------------------------------------------

56(b) Opt-In Requirement
    General rule. Proposed Sec.  226.56(b)(1) set 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.
    The Board adopts the opt-in requirement as proposed. Under the 
final rule, Sec.  226.56, including the requirement to provide notice 
and an opt-in right, applies only to a credit card account under an 
open-end (not home-secured) consumer credit plan, and therefore does 
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 Sec.  
226.2(a)(15)(ii). Section 226.56 and the accompanying commentary are 
also revised throughout to refer to a ``card issuer,'' rather than 
``creditor,'' to reflect that the rule applies only to credit card 
accounts.
    The opt-in notice may be provided by the card issuer orally, 
electronically, or in writing. See Sec.  226.56(b)(1)(i). Compliance 
with the consumer consent provisions or other requirements necessary to 
provide consumer disclosures electronically pursuant to the E-Sign Act 
is not required if the card issuer elects to provide the opt-in notice 
electronically. See also Sec.  226.5(a)(1)(ii)(A). However, as 
discussed below under Sec.  226.56(d)(1)(ii), before the consumer may 
consent orally or electronically, the card issuer must also have 
provided the opt-in notice immediately prior to 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 Sec.  226.56(d)(3), discussed 
below.
    Proposed comment 56(b)-1 clarified that a creditor that has a 
policy and practice of declining to authorize or pay 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.
    Industry commenters asked the Board to clarify the aspects of the 
proposed rule that would not be applicable to a creditor that declined 
transactions if it reasonably believed that a transaction would cause 
the consumer to exceed the credit limit. In particular, industry 
commenters stated it was unclear whether a creditor would be permitted 
to charge an over-the-limit fee where a transaction was authorized on 
the creditor's reasonable belief that the consumer had sufficient 
available credit for a transaction, but the transaction nonetheless 
exceeded the consumer's credit limit when it later posts to the account 
(for example, because of an intervening charge). Industry commenters 
also requested additional guidance regarding the ``reasonable belief'' 
standard.
    Comment 56(b)-1 as revised in the final rule clarifies that Sec.  
226.56(b)(1)(i)-(v), including the requirements to provide notice and 
obtain a consumer's affirmative consent to a card issuer's payment of 
over-the-limit transactions, do not apply to any card issuer that has a 
policy and practice of declining to pay any over-the-limit transaction 
when the card issuer has a reasonable belief that completing the 
transaction will cause the consumer to exceed his or her credit limit. 
While the notice and opt-in requirements of the rule do not apply to 
such card issuers, the prohibition against assessing an over-the-limit 
fee or charge without the consumer's affirmative consent continues to 
apply. See also Sec.  226.56(b)(2). This clarification regarding 
application of the fee prohibition has been moved into the comment in 
response to consumer group suggestions. Thus, if an over-the-limit 
transaction is paid, for example, because of a must-pay transaction 
that was authorized by the card issuer on the belief that the consumer 
had sufficient available credit and which later causes the consumer's 
credit limit to be exceeded when it posts, the card issuer may not 
charge a fee for paying the transaction, absent the consumer's consent 
to the service. The revised comment also clarifies that a card issuer 
has a policy and practice of declining transactions on a ``reasonable 
belief'' that a consumer does not have sufficient available credit if 
it only authorizes those transactions that the card issuer reasonably 
believes, at the time of

[[Page 7745]]

authorization, would not cause the consumer to exceed a credit limit.
    Although a card issuer must obtain consumer consent before any 
over-the-limit fees or charges are assessed on a consumer's account, 
the final rule does not require that the card issuer 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. Comment 56(b)-2, which is 
substantively unchanged from the proposal, also explains, however, that 
even if a consumer has affirmatively consented or opted in to a card 
issuer's over-the-limit service, the card issuer is not required to 
authorize or pay any over-the-limit transactions.
    Proposed comment 56(b)-3 would have provided 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 
under Sec.  226.56(j)(1), however, TILA Section 127(k)(7) prohibits the 
imposition of periodic or maintenance fees related to the payment of 
over-the-limit transactions, even with consumer consent, if the 
consumer has not engaged in an over-the-limit transaction during the 
particular cycle. Accordingly, the final rule does not adopt proposed 
comment 56(b)-3.
    Some industry commenters asserted that the new provisions, 
including the requirements to provide notice and obtain consumer 
consent to the payment of over-the-limit transactions, should not apply 
to existing accounts out of concern that transactions would otherwise 
be disrupted for consumers who may rely on the creditor's over-the-
limit service, but fail to provide affirmative consent by February 22, 
2010. By contrast, consumer groups strongly supported applying the new 
requirements to all credit card accounts, including existing accounts. 
Consumer groups urged the Board to explicitly state this fact in the 
rule or staff commentary. As the Board stated previously, 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. Thus, Sec.  226.56 applies to all credit card accounts, 
including those opened prior to February 22, 2010.
    Reasonable opportunity to opt in. Proposed Sec.  226.56(b)(1)(ii) 
required 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 made orally, 
electronically, or in writing, pursuant to regulations prescribed by 
the Board. See also Sec.  226.56(e), discussed below. Proposed comment 
56(b)-4 contained examples to illustrate methods of providing a 
consumer a reasonable opportunity to affirmatively consent using the 
specified methods. The rule and comment (which has been renumbered as 
comment 56(b)-3) are adopted, substantially as proposed with certain 
revisions for clarity.
    Final comment 56(b)-3 explains that a card issuer provides a 
consumer with a reasonable opportunity to provide affirmative consent 
when, among other things, it provides reasonable methods by which the 
consumer may affirmatively consent. The comment provides four examples 
of such reasonable methods.
    The first example provides that a card issuer 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 comment 56(b)-3.i. 
Alternatively, after the consumer has been approved for the card, the 
card issuer could provide a form with the account-opening disclosures 
or the periodic statement that can be filled out separately and mailed 
to affirmatively request the service. See comment 56(b)-3.ii and Model 
Form G-25(A) in Appendix G, discussed below.
    Comment 56(b)-3.iii illustrates that a card issuer may obtain 
consumer consent through a readily available telephone line. The final 
rule does not require that the telephone number be toll-free, however, 
as card issuers have sufficient incentives to facilitate a consumer's 
opt-in choice. Of course, if a card issuer elects to establish a toll-
free number to obtain a consumer's opt-in, it must similarly make that 
number available for consumers to later revoke their opt-ins if the 
consumer so decides. See Sec.  226.56(c).
    Comment 56(b)-3.iv illustrates that a card issuer may provide an 
electronic means for the consumer to affirmatively consent. For 
example, a card issuer 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 choice by clicking on a 
button that affirms the consumer's consent. See also Sec.  
226.56(d)(1)(ii) (requiring the opt-in notice to be provided 
immediately prior to the consumer's consent). The final comment does 
not require that a card issuer direct consumers to a specific Web site 
address because issuers have an incentive to facilitate consumer opt-
ins.
    Segregation of notice and consent. The Board solicited comment in 
the proposal regarding whether creditors should be required to 
segregate the opt-in notice from other account disclosures. Some 
industry commenters argued that it was unnecessary to require that the 
opt-in notice be segregated from other disclosures because the proposed 
rule would also require that the consumer's consent be provided 
separately from other consents or acknowledgments obtained by the 
creditor. In addition, one industry commenter stated that the over-the-
limit opt-in notice was not more significant than other disclosures 
given to consumers and therefore the notice did not warrant a separate 
segregation requirement. Consumer groups and one state government 
agency, as well as one industry commenter, however, supported a 
segregation requirement to ensure that the information is highlighted 
and to help consumers understand the choice that is presented to them. 
One industry commenter asked whether it would be permissible to include 
a simplified notice on the credit application that provided certain key 
information about the opt-in right, but that referred the applicant to 
separate terms and conditions that included the remaining disclosures.
    The final rule requires that the opt-in notice be segregated from 
all other information given to the consumer. See Sec.  226.56(b)(1)(i). 
The Board believes such a requirement is necessary to 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 
card issuer. The rule would not prohibit card issuers from providing a 
simplified notice on an application regarding the opt-in right that 
referred the consumer to the full notice elsewhere in the application 
disclosures, provided that the full notice contains all of the required 
content segregated from all other information.
    As discussed above, Sec.  226.56(b)(1)(iii) of the final rule 
requires the card issuer to obtain the consumer's affirmative

[[Page 7746]]

consent, or opt-in, to the card issuer's payment of over-the-limit 
transactions. Proposed comment 56(b)-5 provided examples of ways in 
which a consumer's affirmative consent is or is not obtained. 
Specifically, the proposed comment clarified that the consumer's 
consent must be obtained separately from other consents or 
acknowledgments provided by the consumer. The proposal further provided 
that the consumer must initial, sign or otherwise make a separate 
request for the over-the-limit service. Thus, for example, a consumer's 
signature alone on an application for a credit card would not 
sufficiently evidence the consumer's consent to the creditor's payment 
of over-the-limit transactions. The final rule adopts the proposed 
comment, renumbered as comment 56(b)-4, substantially as proposed.
    One industry commenter agreed that it was appropriate to segregate 
consumer consent for over-the-limit transactions from other consents 
provided by the consumer. A state government agency believed, however, 
that the check box approach described in the proposal would not 
sufficiently ensure that consumers will understand that the over-the-
limit decision is not a required part of the credit card application. 
Accordingly, the agency urged the Board to explicitly require that both 
disclosures and written consents are presented separately from other 
account disclosures, with stand-alone plain language documents that 
clearly present the over-the-limit service as discretionary.
    Final comment 56(b)-4 clarifies that regardless of the means in 
which the notice of the opt-in right is provided, the consumer's 
consent must be obtained separately from other consents or 
acknowledgments provided by the consumer. Consent to the payment of 
over-the-limit transactions may not, for example, be obtained solely 
because the consumer signed a credit application to request a credit 
card. The final comment further provides that a card issuer could 
obtain a consumer's affirmative consent by providing a blank signature 
line or a check box on the application that the consumer can sign or 
select to request the over-the-limit coverage, provided that the 
signature line or check box is used solely for the purpose of 
evidencing the consumer's choice and not for any other purpose, such as 
to obtain consumer consents for other account services or features or 
to receive disclosures electronically. The Board believes that the need 
to obtain a consumer's consent separate from any other consents or 
acknowledgments, including from the request for the credit card account 
itself, sufficiently ensures that a consumer would understand that 
consenting to the payment of over-the-limit transactions is not a 
required part of the credit card application.\62\ See, however, Sec.  
226.56(j)(3) (prohibiting card issuers from conditioning the amount of 
credit provided on the consumer also opting in to over-the-limit 
coverage).
---------------------------------------------------------------------------

    \62\ Evidence of consumer consents (as well as revocations) must 
be retained for a period of at least two years under Regulation Z's 
record retention rules, regardless of the means by which consent is 
obtained. See Sec.  226.25.
---------------------------------------------------------------------------

    Written confirmation. The September 2009 Regulation Z Proposal also 
solicited 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. Industry commenters opposed such a 
requirement, stating that it would impose considerable burden and costs 
on creditors, while resulting in little added protection for the 
consumer. In particular, industry commenters observed that the statute 
and proposed rule already require consumers to receive notices of their 
right to revoke a prior consent on each periodic statement reflecting 
an over-the-limit fee or charge. Thus, industry commenters argued that 
the revocation notice would provide sufficient confirmation of the 
consumer's opt-in choice. Industry commenters further noted that 
written confirmation is not required by the statute. In the event that 
written confirmation was required, industry commenters asked the Board 
to permit creditors to provide such notice on or with the next periodic 
statement provided to the consumer after the opt-in election.
    Consumer groups and one state government agency strongly supported 
a written confirmation requirement as a safeguard to ensure consumers 
that have opted in understand that they have consented to the payment 
of over-the-limit transactions. These commenters believed that written 
confirmation of the consumer's choice was critical where a consumer has 
opted in by a non-written method, such as by telephone or in person. In 
this regard, one consumer group asserted that oral opt-ins should be 
permitted only if written confirmation was also required to allow 
consumers time to examine the terms of the opt-in and make a considered 
determination whether the option is right for them.
    The final rule in Sec.  226.56(b)(1)(iv) requires that the card 
issuer provide the consumer with confirmation of the consumer's consent 
in writing, or if the consumer agrees, electronically. The Board 
believes that written confirmation will help ensure that a consumer 
intended to opt into the over-the-limit service by providing the 
consumer with a written record of his or her choice. The Board also 
anticipates that card issuers are most likely to attempt to obtain a 
consumer's opt-in by telephone, and thus in those circumstances in 
particular, written confirmation is appropriate to evidence the 
consumer's intent to opt in to the service.
    Under new comment 56(d)-5, a card issuer could comply with the 
written confirmation requirement, for example, by sending a letter to 
the consumer acknowledging that the consumer has elected to opt in to 
the card issuer's service, or, in the case of a mailed request, the 
card issuer could provide a copy of the consumer's completed opt-in 
form. The new comment also provides that a card issuer could satisfy 
the written confirmation requirement by providing notice on the first 
periodic statement sent after the consumer has opted in. See Sec.  
225.56(d)(2), discussed below. Comment 56(d)-5 further provides that a 
notice consistent with the revocation notice described in Sec.  
226.56(e)(2) would satisfy the requirement. Notwithstanding a 
consumer's consent, however, a card issuer would be prohibited from 
assessing over-the-limit fees or charges to the consumer's credit card 
account until the card issuer has sent the written confirmation. Thus, 
if a card issuer elects to provide written confirmation on the first 
periodic statement after the consumer has opted in, it would not be 
permitted to assess any over-the-limit fees or charges until the next 
statement cycle.
    Payment of over-the-limit transactions where consumer has not opted 
in. Proposed Sec.  226.56(b)(2) provided 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 
contained 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. 
The proposed comment also set forth two illustrative examples of this 
provision.
    The first proposed example addressed circumstances where a merchant 
does not submit a credit card transaction to

[[Page 7747]]

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. Under the proposed example, 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.
    Under the second proposed example, a creditor could not 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, proposed 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.
    Industry commenters urged the Board to create exceptions for the 
circumstances described in the examples to allow creditors to impose 
over-the-limit fees or charges even if the consumer has not consented 
to the payment of over-the-limit transactions. These commenters argued 
that exceptions were warranted in these circumstances because creditors 
may not be able to block such transactions at the time of purchase. One 
industry commenter recommended that the Board create a broad exception 
to the fee prohibition for any transactions that are approved based on 
a reasonable belief that the transaction would not exceed the 
consumer's credit limit. Consumer group commenters strongly supported 
the proposed comment and the included examples.
    Comment 56(b)(2)-1 is adopted substantially as proposed and 
clarifies that the prohibition against assessing over-the-limit fees or 
charges without consumer consent to the payment of such transactions 
applies even in circumstances where the card issuer is unable to avoid 
paying a transaction that exceeds the consumer's credit limit. As the 
Board stated in the supplementary information to the proposal, 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. See 74 FR at 54179.
    The final comment includes a third example of circumstances where a 
card issuer would not be permitted to assess any fees or charges on a 
consumer's account in connection with an over-the-limit transaction if 
the consumer has not opted in to the over-the-limit service. 
Specifically, the new example addresses circumstances where an 
intervening transaction (for example, a recurring charge) that is 
charged to the account before a previously authorized transaction is 
submitted for payment causes the consumer to exceed his or her credit 
limit with respect to the authorized transaction. Under these 
circumstances, the card issuer would not be permitted to assess an 
over-the-limit fee or charge for the previously authorized transaction 
absent consumer consent to the payment of over-the-limit transactions. 
See comment 56(b)(2)-1.iii.
    Proposed comment 56(b)(2)-2 clarified 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 
proposed comment also clarified that a creditor could continue to 
assess interest charges for the over-the-limit transaction.
    Consumer groups opposed the proposed comment, expressing concern 
that the comment could enable creditors to potentially circumvent the 
statutory protections by charging consumers that have not opted in a 
fee substantively similar to an over-the-limit fee or charge, and using 
a different term to describe the fee. Consumer groups urged the Board 
to instead broadly prohibit any fee directly or indirectly caused by or 
resulting from the payment of an over-the-limit transaction unless the 
consumer has opted in. Specifically, consumer groups argued that 
creditors should be prohibited from paying an over-the-limit 
transaction if it might result in any type of fee, including any late 
fees that might arise if the consumer cannot make the increased minimum 
payment caused by the over-the-limit transaction.
    By its terms, TILA Section 127(k)(1) applies only to the assessment 
of any over-the-limit fees by the creditor as a result of an extension 
of credit that exceeds a consumer's credit limit where the consumer has 
not consented to the completion of such transactions. The protections 
in TILA Section 127(k)(1) apply to any such fees for paying an over-
the-limit transaction regardless of the term used to describe the fee. 
This provision does not, however, apply to other fees or charges that 
may be imposed as a result of the over-the-limit transaction, such as 
balance transfer fees or late payment fees. Nor does the statute 
require that a card issuer cease paying over-the-limit transactions 
altogether if the consumer has not opted in. Accordingly, the final 
rule adopts comment 56(b)(2)-2 substantively as proposed.\63\ The final 
comment has also been revised to clarify that a card issuer may debit 
the consumer's account for the amount of the transaction, provided that 
the card issuer is permitted to do so under applicable law. See comment 
56(b)(2)-2.
---------------------------------------------------------------------------

    \63\ The final 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 consent or 
revoke consent to 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. The Board proposed to implement this requirement in Sec.  
226.56(c). In addition, proposed comment 56(c)-1 clarified that the 
creditor may determine the means by which consumers may provide 
affirmative consent. The creditor could decide, for example, whether to 
obtain consumer consent in writing, electronically, by telephone, or to 
offer some or all of these options.
    In addition, proposed Sec.  226.56(c) would have required 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). In that regard, the Board requested comment 
on whether the rule should require creditors to allow consumers to opt 
in and to revoke that consent using any of the three methods (that is, 
orally, electronically, and in writing).
    Industry commenters stated that the final rule should not require 
creditors to provide all three methods of consent and revocation, 
citing the compliance

[[Page 7748]]

burden and costs of setting up separate systems for obtaining consumer 
consents and processing consumer revocations, particularly for small 
community banks and credit unions. Consumer groups agreed with the 
clarification in comment 56(c)-1 that a creditor should be required to 
accept revocations of consent made by the same methods made available 
to the consumer for providing consent. However, consumer groups 
believed that the proposed rule fell short of that goal because it did 
not similarly provide a form that consumers could fill out and mail in 
to revoke consent similar to the form for providing consent. Instead, 
consumer groups noted that the proposed model revocation notice 
directed the consumer to write a separate letter and mail it in to the 
creditor.
    Section 226.56(c) is adopted substantively as proposed and allows a 
card issuer to obtain a consumer's consent to the card issuer's payment 
of over-the-limit transactions in writing, orally, or electronically, 
at the card issuer's option. The rule recognizes that card issuers have 
a strong interest in facilitating a consumer's ability to opt in, and 
thus permits them to determine the most effective means in obtaining 
such consent. Regardless of which methods are provided to the consumer 
for obtaining consent, the final rule requires that the same methods 
must be made available to the consumer for revoking consent. As 
discussed below, Model Form G-25(B) has been revised to include a check 
box form that a card issuer may use to provide consumers for revoking a 
prior consent.
    Comment 56(c)-2 is adopted as proposed and provides that consumer 
consent or revocation requests are not consumer disclosures for 
purposes of the E-Sign Act. Accordingly, card issuers 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.
56(d) Timing
    Proposed Sec.  226.56(d)(1)(i) established 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. No comments were received regarding proposed Sec.  
226.56(d)(1)(i), and it is adopted as proposed. A card issuer may 
comply with the rule, for example, by including the notice as part of 
the credit card application. See comment 56(b)-3.i. 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 comment 56(b)-3.ii.
    Proposed Sec.  226.56(d)(1)(ii) would have required a creditor to 
provide the opt-in notice immediately before and contemporaneously with 
a consumer's election where the consumer consents by oral or electronic 
means. For example, if a consumer calls the creditor to consent to the 
creditor's payment of over-the-limit transactions, the proposed rule 
would have required the creditor to provide the opt-in notice 
immediately prior to obtaining the consumer's consent. This proposed 
requirement recognized that creditors may wish to contact consumers by 
telephone or electronically as a more expeditious means of obtaining 
consumer consent to the payment of over-the-limit transactions. Thus, 
proposed Sec.  226.56(d)(1)(ii) was intended to ensure that a consumer 
would have full information regarding the opt-in right at the most 
meaningful time, that is, when the opt-in decision is made. Consumer 
groups strongly supported the proposed requirement for oral and 
electronic consents to ensure that consumers are able to make an 
informed decision regarding over-the-limit transactions. Industry 
commenters did not oppose this requirement. The final rule adopts Sec.  
226.56(d)(1)(ii), generally as proposed.
    New comment 56(d)-1 clarifies that the requirement to provide an 
opt-in notice immediately prior to obtaining consumer consent orally or 
electronically means that the card issuer must provide an opt-in notice 
prior to and as part of the process of obtaining the consumer's 
consent. That is, the issuer must provide an opt-in notice containing 
the content in Sec.  226.56(e)(1) as part of the same transaction in 
which the issuer obtains the consumer's oral or electronic consent.
    As discussed above, a card issuer must provide a consumer with 
written confirmation of the consumer's decision to opt in to the card 
issuer's payment of over-the-limit transactions. See Sec.  
226.56(b)(1)(iv). New Sec.  226.56(d)(2) requires that this written 
confirmation must be provided no later than the first periodic 
statement sent after the consumer has opted in. As discussed above, a 
card issuer could provide a notice consistent with the revocation 
notice described in Sec.  226.56(e)(2). See comment 56(b)-5. Consistent 
with Sec.  226.56(b)(1), however, a card issuer may not assess any 
over-the-limit fees or charges unless and until it has sent written 
confirmation of the consumer's opt-in decision.
    Proposed Sec.  226.56(d)(2) would have provided 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, the proposed rule required that the notice 
appear on the front of any page of the periodic statement. Proposed 
comment 56(d)-1 would have provided creditors flexibility in how often 
a revocation notice should be provided. Specifically, creditors, at 
their option, could, but were 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.
    One industry commenter stated that the periodic statement 
requirement would be overly burdensome and costly for financial 
institutions. This commenter believed that providing a consumer notice 
of his or her right to revoke consent at the time of the opt-in would 
sufficiently inform the consumer of that possibility without requiring 
creditors to bear the cost of providing a revocation notice on each 
statement reflecting an over-the-limit fee or charge. Consumer groups 
believed that the final rule should require that a standalone 
revocation notice be sent to a consumer after the incurrence of an 
over-the-limit fee to make it more likely that a consumer would see the 
notice, rather than placing the notice on the periodic statement with 
other disclosures. In the alternative, consumer groups stated that the 
revocation notice should be placed on the first page of the periodic 
statement or on the page reflecting the fee to enhance likelihood that 
the consumer would notice it. Consumer groups also argued that 
revocation notices should only be provided by a creditor when an over-
the-limit fee is assessed to a consumer's credit card account to avoid 
the possibility that consumers would ignore the notice as boilerplate 
language on the statement.
    In the final rule, the timing and placement requirements for the 
notice of the right of revocation has been adopted

[[Page 7749]]

in Sec.  226.56(d)(3), as proposed. The requirement to provide notice 
informing a consumer of the right to revoke a prior election regarding 
the payment of over-the-limit transactions following the imposition of 
an over-the-limit fee is statutory. TILA Section 127(k)(2) also 
provides that such notice must be on the periodic statement reflecting 
the fee. The final rule does not, however, mandate that the notice be 
placed on the front of the first page of the periodic statement or on 
the front of the page that indicates the over-the-limit fee or charge. 
The Board is concerned about the potential for information overload in 
light of other requirements elsewhere in the regulation regarding 
notices that must be on the front of the first page of the periodic 
statement or in proximity to disclosures regarding fees that have been 
assessed by the creditor during that cycle. See, e.g., Sec.  
226.7(b)(6)(i); Sec.  226.7(b)(13).
    Proposed comment 56(d)-1, which would have permitted creditors to 
include a revocation notice on each periodic statement whether or not a 
consumer has incurred an over-the-limit fee or charge, is not adopted 
in the final rule. The final rule does not expressly prohibit card 
issuers from providing a revocation notice on every statement 
regardless of whether a consumer has been assessed an over-the-limit 
fee or charge. Nonetheless, the Board believes that for some consumers, 
a notice appearing on each statement informing the consumer of the 
right to revoke a prior consent would not be as effective as a more 
targeted notice that is provided at a point in time when the consumer 
may be motivated to act, that is, after he or she has incurred an over-
the-limit fee or charge.
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) set forth the content requirements for both notices. 
The proposal also included model forms that creditors could use to 
facilitate compliance with the new requirements. See proposed Model 
Forms G-25(A) and G-25(B) in Appendix G.
    Initial notice content. Proposed Sec.  226.56(e)(1) set forth 
content requirements for the opt-in notice provided to consumers before 
a creditor may assess any fees or charges for paying an over-the-limit 
transaction. In addition to the amount of the over-the-limit fee, the 
proposed rule prescribed certain other information regarding the opt-in 
right to be included in the opt-in notice 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 requested comment regarding whether the rule should permit or 
require any other information to be included in the opt-in notice.
    Consumer groups and one state government agency generally supported 
the proposed content and model opt-in form, but suggested the Board 
revise the form to include additional information about the opt-in 
right, including that a consumer is not required to sign up for over-
the-limit coverage and the minimum over-the-limit amount that could 
trigger a fee. Consumer groups and this agency also asserted that no 
other information should be permitted in the notice unless expressly 
specified or permitted under the rule. For example, these commenters 
believed that creditors should be precluded from including any 
marketing of the benefits that may be associated with over-the-limit 
coverage out of concern that the additional information could dilute 
consumer understanding of the opt-in disclosure. Industry commenters 
suggested various additions to the model form to enable creditors to 
provide more information that they deemed appropriate to enhance a 
consumer's understanding or the risks and benefits associated with the 
opt-in right. Industry commenters also stated that creditors should be 
able to include contractual terms or safeguards regarding the right.
    The Board is adopting Sec.  226.56(e)(1) largely as proposed, but 
with modified content based on the comments received and upon further 
consideration. The final rule does not permit card issuers to include 
any information in the opt-in notice that is not specified or otherwise 
permitted by Sec.  226.56(e)(1). The Board believes that the addition 
of other information would potentially overwhelm the required content 
in the notice and impede consumer understanding of the opt-in right. 
For the same reason, the final rule does not require card issuers to 
include any additional information regarding the opt-in right as 
suggested by consumer groups and others.
    Under Sec.  226.56(e)(1)(i), the opt-in notice must 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 
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 or charge. See, e.g., Sec.  226.5a(b)(10). Because a 
card issuer 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 card issuers may 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, proposed comment 56(e)-1 would have 
permitted a creditor to disclose the maximum fee that may be imposed or 
a range of fees. The final comment does not include the reference to 
the range of fees. Card issuers that tier the amount of the fee could 
otherwise include a range from $0 to their maximum fee, which could 
lead consumers to underestimate the costs of exceeding their credit 
limit. To address tiered over-the-limit fees, comment 56(e)-1 provides 
that the card issuer may indicate that the consumer may be assessed a 
fee ``up to'' the maximum fee.
    In addition to disclosing the amount of the fee or charge that may 
be imposed for an over-the-limit transaction, Sec.  226.56(e)(1)(ii) 
requires card issuers 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 rate, the 
imposition of a penalty rate, or both, this fact must be included in 
the opt-in notice.
    Section 226.56(e)(1)(iii) requires card issuers to explain the 
consumer's right

[[Page 7750]]

to affirmatively consent to the card issuer's payment of over-the-limit 
transactions, including the method(s) that the card issuer may use to 
exercise the right to opt in. Comment 56(e)-2 provides guidance 
regarding how a card issuer may describe this right. For example, the 
card issuer could explain that any transactions that exceed the 
consumer's credit limit will be declined if the consumer does not 
consent to the service. In addition, a card issuer should explain that 
even if a consumer consents, the payment of over-the-limit transactions 
is at the card issuer's discretion. In this regard, the card issuer may 
indicate that it may decline a transaction for any reason, such as if 
the consumer is past due or significantly over the limit. The card 
issuer may also disclose the consumer's right to revoke consent.
    Under the comment as proposed, a creditor would have been permitted 
to also describe the benefits of the payment of over-the-limit 
transactions. Upon further analysis, the Board believes that including 
discussion of any such benefits could dilute the core purpose of the 
form, which is to explain the opt-in right in a clear and readily 
understandable manner. Of course, a card issuer may provide additional 
discussion about the over-the-limit service, including the potential 
benefits of the service, in a separate document.
    Notice of right of revocation. Section 226.56(e)(2) implements 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. Under the final rule, the notice 
must describe the consumer's right to revoke any consent previously 
granted, including the method(s) by which the consumer may revoke the 
service. The Board did not receive any comment on proposed Sec.  
226.56(e)(2), and it is adopted without any substantive changes.
    Model forms. Model Forms G-25(A) and (B) include sample language 
that card issuers may use to comply with the notice content 
requirement. Use of the model forms, or substantially similar notices, 
provides card issuers a safe harbor for compliance under Sec.  
226.56(e)(3). The Model Forms have been revised from the proposal for 
clarity, and in response to comments received. To facilitate consumer 
understanding, a card issuer may, but is not required, to provide a 
signature line or check box on the opt-in form where the consumer can 
indicate that they decline to opt in. See Model Form G-25(A). 
Nonetheless, if the consumer does not check any box or provide a 
signature, the card issuer must assume that the consumer does not opt 
in.
    Model Form G-25(B) contains language that card issuers may use to 
satisfy both the revocation notice and written confirmation 
requirements in Sec.  226.56(b)(1)(iv) and (v). The model form has been 
revised to include a form that consumers may fill out and send back to 
the card issuer to cancel or revoke a prior consent.
56(f)-(i) Additional Provisions Addressing Consumer Opt-In Right
    Joint accounts. Proposed Sec.  226.56(f) would have required 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. The proposed provision also provided that a 
creditor must treat a revocation of affirmative consent by any of the 
joint consumers as revocation of consent for that account. Consumer 
groups urged the Board to require creditors to obtain consent from all 
account-holders on a joint account before any over-the-limit fees or 
charges could be assessed on the account so that each account-holder 
would have an equal opportunity to avoid the imposition of such fees or 
charges.
    The Board is adopting Sec.  226.56(f) substantively as proposed. 
This provision recognizes that it may not be operationally feasible for 
a card issuer 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 card issuer 
must treat the consent as applying to all over-the-limit transactions 
for that account. The final rule would similarly provide that if one 
joint consumer elects to cancel the over-the-limit coverage for the 
account, the card issuer must treat the revocation as applying to all 
over-the-limit transactions for that account.
    Section 226.56(f) applies only to consumer consent and revocation 
requests from consumers that are jointly liable on a credit card 
account. Accordingly, card issuers are not 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 card issuer's over-the-limit 
transaction. Comment 56(f)-1 provides this guidance.
    Continuing right to opt in or revoke opt-in. Proposed Sec.  
226.56(g) provided 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. This provision would allow 
consumers to decide later in the account relationship whether they want 
to opt in to the creditor's payment of over-the-limit transactions. 
Similarly, a consumer may revoke a prior consent at any time in the 
manner described in the revocation notice. See TILA Section 127(k)(4). 
No comments were received on Sec.  226.56(g), and it is adopted 
substantively as proposed.
    Comment 56(g)-1 has been revised to clarify that a consumer's 
decision to revoke a prior consent would not require the card issuer to 
waive or reverse any over-the-limit fee or charges assessed to the 
consumer's account for transactions that occurred prior to the card 
issuer's implementation of the consumer's revocation request. Thus, the 
comment permits a card issuer to impose over-the-limit fees or charges 
for transactions that the card issuer authorized prior to implementing 
the revocation request, even if the transaction is not charged to the 
account until after implementation. In addition, the final rule does 
not prevent the card issuer from assessing over-the-limit fees in a 
subsequent cycle if the consumer's account balance continues to exceed 
the credit limit after the payment due date as a result of an over-the-
limit transaction that occurred prior to the consumer's revocation of 
consent. See Sec.  226.56(j)(1).
    Duration of opt-in. Section 226.56(h) provides that a consumer's 
affirmative consent is generally effective until revoked by the 
consumer. Comment 56(h)-1 clarifies, however, that a card issuer 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 card 
issuer may wish to stop providing the service in response to changes in 
the credit risk presented by the consumer. Section 226.56(h) and 
comment 56(h)-1 are adopted substantively as proposed.
    Time to implement consumer revocation. Proposed Sec.  226.56(i) 
would have required a creditor to implement a consumer's revocation 
request as soon as reasonably practicable after the creditor receives 
the request. The proposed requirement recognized 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

[[Page 7751]]

consumer subsequently decides to revoke that request.
    The proposal also solicited comment whether a safe harbor for 
implementing revocation requests would be useful to facilitate 
compliance with the proposed rule, such as five business days from the 
date of the request. In addition, comment was requested on 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. 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.
    Consumer groups supported the alternative approach of requiring 
creditors to implement a consumer's revocation request within the same 
period taken to implement the consumer's opt-in request, but believed 
that a firm number of days would provide greater certainty for 
consumers regarding when their revocation requests will be implemented. 
Specifically, consumer groups urged the Board to establish a safe 
harbor of three days from when the creditor receives the revocation 
request.
    Industry commenters varied in their recommendations of an 
appropriate safe harbor for implementing a revocation request, ranging 
from five to 20 days or the creditor's normal billing cycle. In 
general, industry commenters generally believed that the Board should 
provide flexibility for creditors in processing revocation requests 
because the appropriate amount of time will vary due to a number of 
factors, including the volume of requests and the channel in which the 
creditor receives the request. One industry commenter supported the 
alternative approach stating that there was little reason opt-in and 
revocation requests could not be processed in the same period of time. 
Another industry commenter stated, however, that the rule should 
provide creditors a reasonable period of time to implement a revocation 
request to prevent a consumer from engaging in transactions that may 
exceed the consumer's credit limit before a creditor can update its 
systems to decline the transactions.
    The final rule requires a card issuer to implement a consumer's 
revocation request as soon as reasonably practicable after the creditor 
receives it, as proposed. Accordingly, Sec.  226.56(i) does not 
prescribe a specific period of time within which a card issuer must 
honor a consumer's revocation request 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 card 
issuer's general address for receiving correspondence or to an address 
specifically designated to receive consumer opt-in and revocation 
requests). The Board also notes that the approach taken in the final 
rule mirrors the same rule adopted in the Board's recently issued final 
rule on overdraft services for processing revocation requests relating 
to consumer opt-ins to ATM and one-time debit card overdraft services. 
See 74 FR 59033 (Nov. 17, 2009). The Board believes that in light of 
the similar opt-in and revocation regimes adopted in both rules, 
consistency across the regulations would facilitate compliance for 
institutions that offer both debit and credit card products.
56(j) Prohibited Practices
    Section 226.56(j) prohibits certain card issuer 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 card issuer'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. The Board proposed to implement 
these restrictions in Sec.  226.56(j)(1).
    Proposed Sec.  226.56(j)(1)(i) would have prohibited a creditor 
from imposing more than one over-the-limit fee or charge on a 
consumer's credit card account in any billing cycle. The proposed rule 
also prohibited a creditor from imposing 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. Proposed Sec.  
226.56(j)(1)(ii) would have provided, however, 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. No comments were received on the proposed restrictions in Sec.  
226.56(j)(1) and the final rule adopts Sec.  226.56(j)(1) substantively 
as proposed.
    Section 226.56(j)(1)(i) in the final rule further prohibits a card 
issuer from imposing any over-the-limit fees or charges for the same 
transaction in 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.\64\
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    \64\ In the supplementary information accompanying the proposed 
rule, the Board noted that 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. Because the Board has used its authority under TILA 
Section 105(a) to adjust the requirements in TILA Section 127(k)(7) 
in order to ensure that the consumer has at least until the payment 
due date to reduce his or her balance below the credit limit, the 
Board believes it is unnecessary to address this concern using its 
separate authority under TILA Section 127(k)(5).
---------------------------------------------------------------------------

    One possible interpretation of new TILA Section 127(k)(7) would 
provide consumers until the end of the billing cycle, rather than the 
payment due date, to make a payment that reduces the account balance 
below the credit limit. The Board understands, however, that 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 card issuer sufficient time to reflect timely payments on the 
subsequent periodic statement and to determine the fees and interest 
charges for the statement period. Thus, if the rule were to give 
consumers until the end of the billing cycle to reduce the account 
balance below the credit limit, card issuers 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. See TILA Section 163(a); Sec.  226.5(b)(2)(ii).

[[Page 7752]]

    Moreover, 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 
exercising its TILA Section 105(a) authority to provide that a card 
issuer 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.
    New comment 56(j)-1 clarifies that an over-the-limit fee or charge 
may be assessed on a consumer's account only if the consumer has 
exceeded the credit limit during the billing cycle. Thus, a card issuer 
may not impose any recurring or periodic fees for paying over-the-limit 
transactions (for example, a monthly ``over-the-limit protection'' 
service fee), even if the consumer has affirmatively consented to or 
opted in to the service, unless the consumer has in fact exceeded the 
credit limit during that cycle. The new comment is adopted in response 
to a consumer group comment that TILA Section 127(k)(7) only permits an 
over-the-limit fee to be charged during a billing cycle ``if the credit 
limit on the account is exceeded.''
    Section 226.56(j)(1)(ii) of the final rule provides that the 
limitation on imposing over-the-limit fees for more than three billing 
cycles in Sec.  226.56(j)(1)(i) 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 card issuer would not constitute an additional over-the-
limit transaction for purposes of this exception, consistent with the 
definition of ``over-the-limit transaction'' under Sec.  226.56(a). In 
addition, the exception would not permit a card issuer 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. Comment 56(j)-2 contains examples illustrating 
the general rule and the exception.
Proposed Prohibitions on Unfair or Deceptive Over-the-Limit Acts or 
Practices
    Section 226.56(j) includes additional substantive limitations and 
restrictions on certain creditor acts or practices regarding the 
imposition of over-the-limit fees. These 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).\65\ Specifically, 
the FTC Act provides that an act or practice is unfair when it causes 
or is likely to cause 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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    \65\ 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).
---------------------------------------------------------------------------

    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.\66\ 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.\67\
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    \66\ 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).
    \67\ 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 into the FTC Act.\68\ 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.\69\
---------------------------------------------------------------------------

    \68\ 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).
    \69\ 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.
---------------------------------------------------------------------------

    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.\70\ In adopting 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.
---------------------------------------------------------------------------

    \70\ 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).
---------------------------------------------------------------------------

56(j)(2) Failure To Promptly Replenish
    Section 226.10 of Regulation Z 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.
    In the September 2009 Regulation Z Proposal, the Board proposed to 
prohibit creditors from assessing an over-the-limit fee or charge that 
is caused by the creditor's failure to

[[Page 7753]]

promptly replenish the consumer's available credit. Section 
226.56(j)(2) of the final rule adopts the prohibition substantively as 
proposed.
Public Comments
    Consumer groups supported the proposed prohibition against 
assessing over-the-limit fees or charges caused by a creditor's failure 
to promptly replenish the consumer's available credit. Industry 
commenters generally did not oppose the proposed prohibition, but asked 
the Board to provide additional guidance regarding what it considered 
to be ``prompt'' replenishment of the consumer's available credit. One 
industry commenter asked the Board to specifically permit a creditor to 
wait a reasonable amount of time after receiving payment before 
replenishing the consumer's available credit. This commenter noted that 
while creditors will typically credit payments as of the date of 
receipt, the rule should not expose creditors to possible fraud or 
nonpayment by requiring them to make credit available in connection 
with a payment that has not cleared.
    In response to the Board's request for comment regarding whether 
the rule should provide a safe harbor specifying the number of days 
following the crediting of a consumer's payment by which a creditor 
must replenish a consumer's available credit, industry commenters 
offered suggestions ranging from three to ten days in order to provide 
creditors sufficient time to mitigate any losses due to fraud or 
returned payments. One industry commenter cautioned that establishing 
any parameters regarding replenishment could contribute to a higher 
cost of credit if the established time period did not permit sufficient 
time for payments to clear.
Legal Analysis
    The Board finds that the imposition of fees or charges for an over-
the-limit transaction caused solely by a card issuer's failure to 
promptly replenish the consumer's available credit after the card 
issuer has credited the consumer's payment is an unfair practice.
    Potential injury that is not reasonably avoidable. 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.\71\ 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.\72\
---------------------------------------------------------------------------

    \71\ 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).
    \72\ See id. at 25.
---------------------------------------------------------------------------

    In most cases, card issuers 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 account once the consumer has made 
payments on the account balance and the available credit is restored to 
the account. If, however, the card issuer delays replenishment on the 
account after crediting the payment to the consumer's account, the 
consumer could inadvertently exceed the credit limit if the consumer 
uses the credit card account for new transactions and such transactions 
are authorized by the card issuer. In such event, the consumer could 
incur substantial monetary injury due to the fees assessed and 
potential interest rate increases in connection with the card issuer's 
payment of over-the-limit transactions.
    Because the consumer will generally be unaware when the card issuer 
has delayed replenishing the available credit on the account after 
crediting the payment to the account, the Board concludes that 
consumers cannot reasonably avoid the injury caused by over-the-limit 
fees and rate increases triggered by transactions that exceed the limit 
as a result of the delay in replenishment.
    Potential costs and benefits. The Board also finds that the 
prohibited practice does not create benefits for consumers and 
competition that outweigh the injury. While a card issuer may 
reasonably decide to delay replenishing a consumer's available credit, 
for example, to ensure the payment clears or in cases of suspected 
fraud on the account, there is minimal if any benefit to the consumer 
from permitting the card issuer to assess over-the-limit fees that may 
be incurred as a result of the delay in replenishment.
Final Rule
    Section 226.56(j)(2) is adopted substantively as proposed and 
prohibits a card issuer from imposing any over-the-limit fee or charge 
solely because of the card issuer's failure to promptly replenish the 
consumer's available credit after the card issuer has credited the 
consumer's payment under Sec.  226.10.
    Comment 56(j)-3 clarifies that the final rule does not require card 
issuer to immediately replenish the consumer's available credit upon 
crediting the consumer's payment under Sec.  226.10. Rather, the 
creditor is only 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. 
Thus, a card issuer may continue to delay replenishment as necessary to 
allow the consumer's payment to clear or to prevent potential fraud, 
provided that it does not assess any over-the-limit fees or charges 
because of its delay in restoring the consumer's available credit. 
Comment 56(j)-3 also clarifies that the rule does not require a card 
issuer to decline all transactions for consumers who have opted in to 
the card issuer's payment of over-the-limit transactions until the 
available credit has been restored.
    As discussed above, Sec.  226.56(j)(2) solely prohibits the 
assessment of an over-the-limit fee or charge due to a card issuer's 
failure to promptly replenish a consumer's available credit following 
the crediting of the consumer's payment under Sec.  226.10. Thus, the 
final rule does not establish a number of days within which a 
consumer's available credit must be replenished by a card issuer after 
a payment has been credited. Because the time in which a payment may 
take to clear may vary greatly depending on the type of payment, the 
Board believes that the determination of when the available credit 
should be replenished should rest with the individual card issuer, so 
long as the consumer does not incur over-the-limit fees or charges as a 
result of the card issuer's delay in replenishment.
56(j)(3) Conditioning
    The Board proposed to 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. 
Proposed Sec.  226.56(j)(3) was intended to address 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. The final rule adopts the prohibition as proposed.
Public Comments
    Consumer groups and one federal banking agency supported the 
proposed prohibition to help ensure that consumers can freely choose 
whether or not to opt in. However, these commenters believed that 
greater

[[Page 7754]]

protections were needed to prevent other creditor actions that could 
compel a consumer to opt in or that otherwise discriminated against a 
consumer that elected not to opt in. Specifically, these commenters 
urged the Board to prohibit any differences in credit card accounts 
based upon whether the consumer elects to opt in to the payment of 
over-the-limit transactions. These commenters were concerned that 
issuers might otherwise offer other less favorable terms to consumers 
who do not opt in, such as a higher interest rate or a higher annual 
fee. Or, creditors might induce consumers to opt in by waiving a fee or 
lowering applicable APRs. Consumer groups further observed that the 
Board has recently taken a similar approach in the Board's recent final 
rules under Regulation E addressing overdraft services to prohibit 
financial institutions from varying the account terms, conditions, or 
features for consumers that do not opt in to overdraft services for ATM 
and one-time debit card transactions. See 74 FR 59033 (Nov. 17, 2009). 
Consumer groups also urged the Board to prohibit issuers from imposing 
fees, such as denied transaction fees, that could be designed to coerce 
consumers to opt in to over-the-limit coverage.
    Both consumer groups and the federal banking agency agreed with the 
Board's observation in the supplementary information to the proposal 
that conditioning the amount of credit provided based on whether the 
consumer opts in to the creditor's payment of over-the-limit 
transactions raised significant concerns under the Equal Credit 
Opportunity Act (ECOA). See 15 U.S.C. 1691(a)(3). The federal banking 
agency expressed concern, however, that the Board's failure to 
similarly state that providing other adverse credit terms, such as 
higher fees or rates, based on the consumer's decision not to opt in 
could suggest that such variances were in fact permissible under ECOA 
and Regulation B (12 CFR 205).
Legal Analysis
    The Board finds that conditioning or linking the amount of credit 
available to the consumer based on the consumer consenting to the card 
issuer's payment of over-the-limit transactions is an unfair practice.
    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 card issuer'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 appears that such consumers would be 
prevented from exercising a meaningful choice regarding the card 
issuer's payment of over-the-limit transactions.
    Potential costs and benefits. The Board concludes that there are 
few if any benefits to consumers or competition from conditioning or 
linking the amount of credit available to the consumer based on the 
consumer consenting to the card issuer's payment of over-the-limit 
transactions. While some card issuers may seek to replace the revenue 
from over-the-limit fees by charging consumers higher annual percentage 
rates or fees, the Board believes that consumers will benefit overall 
from having a meaningful choice regarding whether to have over-the-
limit transactions approved by the card issuer.
Final Rule
    Section 226.56(j)(3) prohibits a card issuer from conditioning or 
otherwise linking the amount of credit granted on the consumer opting 
in to the card issuer's payment of over-the-limit transactions. Thus, 
the final rule is intended to prevent card issuers from effectively 
circumventing the consumer choice requirement by tying the amount of a 
consumer's credit limit to the consumer's opt-in decision.
    Under the final rule, a card issuer may not, for example, require a 
consumer to opt in to the card issuer's fee-based over-the-limit 
service in order to receive a higher credit limit for the account. 
Similarly, a card issuer would be prohibited from denying a consumer's 
credit card application solely because the consumer did not opt in to 
the card issuer's over-the-limit service. The final rule is illustrated 
by way of example in comment 56(j)-4.
    The final rule does not address other card issuer actions that may 
also lead a consumer to opt in to the card issuer's payment of over-
the-limit transactions contrary to the consumer's preferences. As 
discussed above, TILA Section 127(k)(5)(B) directs the Board to 
prescribe regulations preventing 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.'' Nonetheless, the 
Board notes this rule is not intended to identify all unfair or 
deceptive acts or practices that may arise in connection with the opt-
in requirement. To the extent that specific practices raise concerns 
regarding unfairness or deception under the FTC Act with respect to 
this requirement, this rule would not limit the ability of the Board or 
any other agency to make any such determination on a case-by-case 
basis. This rule also does not preclude any action by the Board or any 
other agency to address creditor practices with respect to a consumer's 
exercise of the opt-in right that may raise significant concerns under 
ECOA and Regulation B.
56(j)(4) Over-the-Limit Fees Attributed to Fees or Interest
    The Board proposed to 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. Section 226.56(j)(4) adopts this 
prohibition substantively as proposed.
Public Comments
    Consumer groups supported the proposed prohibition. In contrast, 
one industry trade association representing community banks believed 
that the proposed prohibition would require extensive programming of 
data systems and urged the Board not to adopt the prohibition in light 
of the significant operational burden and costs that would be incurred. 
Another industry commenter questioned whether the proposed prohibition 
was sufficiently tied to a creditor's manipulation of credit limits as 
contemplated by TILA Section 127(k)(5).
Legal Analysis
    The Board finds the imposition of any over-the-limit fees or 
charges if a consumer's credit limit is exceeded solely because of the 
card issuer's assessment of accrued interest charges or fees on the 
consumer's credit card account is an unfair practice.
    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 Board concludes that the injury from over-the-limit fees and 
potential rate increases is not reasonably avoidable in these 
circumstances because consumers are, as a general matter, unlikely to 
be aware of the

[[Page 7755]]

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 
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 card issuer revenues and lead card issuers to replace 
lost revenue by charging consumers higher rates or fees, the Board 
believes the final rule 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.
Final Rule
    Section 226.56(j)(4) in the final rule prohibits card issuers 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 card issuer to 
the consumer's account during the billing cycle, as proposed. For 
purposes of this prohibition, the fees or interest charges that may not 
trigger the imposition of an over-the-limit fee or charge are 
considered charges imposed as part of the plan under Sec.  
226.6(b)(3)(i). Thus, the final rule also prohibits 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 
constitute charges imposed as part of the plan (for example, fees for 
voluntary debt cancellation or suspension coverage). The prohibition in 
the final rule does not, however, restrict card issuers 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. New 
comment 56(j)-5 includes this additional guidance and illustrative 
examples.

Section 226.57 Reporting and Marketing Rules for College Student Open-
End Credit

    New TILA Section 140(f), as added by Section 304 of the Credit Card 
Act, requires 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 imposes new restrictions related 
to marketing open-end credit to college students. 15 U.S.C. 1650(f). 
The Board proposed to implement these provisions in new Sec.  226.57.
    The Board also proposed to implement provisions related to new TILA 
Section 127(r) in Sec.  226.57. 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. 15 U.S.C. 1637(r).
57(a) Definitions
    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 proposed to incorporate the definitions set forth in TILA Section 
127(r) in Sec.  226.57(a) and apply them to regulations implementing 
both TILA Sections 127(r) and 140(f).
    Proposed Sec.  226.57(a)(1) defined ``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. The Board received no comments on this 
definition, and the definition is adopted as proposed with one non-
substantive wording change. As 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. Consistent with the approach the Board is 
implementing for other sections of the Credit Card Act, the definition 
uses the proposed term ``credit card account under an open-end (not 
home-secured) consumer credit plan,'' as defined in Sec.  226.2(a)(15). 
The term ``college student credit card'' therefore excludes 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 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. In connection with the proposed 
rule, the Board solicited comment on whether Sec.  226.57 should 
include a regulatory definition of ``college affinity card.'' One card 
issuer commenter requested that the Board include such a definition in 
the final rule. The Board continues to believe, however, 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 that a definition of ``college affinity 
card'' therefore is unnecessary. As proposed, the Board is not adopting 
a regulatory definition comparable to this definition in the statute.
    Comment 57(a)(1)-1 is adopted as proposed. Comment 57(a)(1)-1 
clarifies 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) defined ``college student'' as an 
individual who is a full-time or a part-time student attending an 
institution of higher

[[Page 7756]]

education. This definition is consistent with the definition of 
``college student'' in TILA Section 127(r)(1)(C). An industry commenter 
suggested that the Board limit the definition to students who are under 
the age of 21. As the Board discussed in the October 2009 Regulation Z 
Proposal, the definition is intended to be broad and would apply to 
students of any age attending an institution of higher education and 
applies to all students, including those enrolled in graduate programs 
or joint degree programs. The Board believes that it was Congress's 
intent to apply this term broadly, and is adopting Sec.  226.57(a)(2) 
as proposed with one non-substantive wording change.
    As discussed in the October 2009 Regulation Z Proposal, the Board 
proposed to adopt a definition of ``institution of higher education'' 
in Sec.  226.57(a)(3) that would be consistent with the definition of 
the term in TILA Section 127(r)(1)(D) and in Sec.  226.46(b)(2) for 
private education loans. The proposed definition provided that the term 
has the same meaning as in sections 101 and 102 of the Higher Education 
Act of 1965. 20 U.S.C. 1001 and 1002. In proposing the definition, the 
Board proposed 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) in 
order to have a consistent definition of the term for all sections 
added by the Credit Card Act and to facilitate compliance. 15 U.S.C. 
1604(a). The Board received no comment on the proposed definition, and 
Sec.  226.57(a)(3) is adopted as proposed.
    Proposed Sec.  226.57(a)(4) defined ``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. The Board received no comment 
regarding this definition, and Sec.  226.57(a)(4) is adopted as 
proposed with one non-substantive wording change.
    Proposed Sec.  226.57(a)(5) delineated the types of agreements for 
which creditors must provide annual reports to the Board, under the 
defined term ``college credit card agreement.'' The term was 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. In 
connection with the proposed rule, the Board noted that the proposed 
definition did not incorporate the concept of a college affinity card 
agreement used in TILA Section 127(r)(1)(A) and solicited comment on 
whether language referring to college affinity card agreements also 
should be included in the regulations. The Board received no comments 
on this issue. The Board continues to believe that the definition of 
``college credit card agreement'' is broad enough to include agreements 
concerning college affinity cards. Section 226.57(a)(5) therefore is 
adopted as proposed with one non-substantive wording change.
    Comment 57(a)(5)-1 is adopted as proposed. Comment 57(a)(5)-1 
clarifies that 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
    In the October 2009 Regulation Z Proposal the Board proposed to 
implement new TILA Section 140(f)(1) in Sec.  226.57(b). Consistent 
with the statute, proposed Sec.  226.57(b) requires an institution of 
higher education to publicly disclose any credit card marketing 
contract or other agreement made with a card issuer or creditor. The 
Board also proposed comment 57(b)-1 to 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. Comment 57(b)-1 also provided that the institution of higher 
education may alternatively 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. As discussed in 
the October 2009 Regulation Z Proposal the list in proposed comment 
57(b)-1 was not meant to be exhaustive, and the Board noted that an 
institution of higher education may publicly disclose these contracts 
or agreements in other ways.
    Consumer group commenters suggested that the Board clarify that the 
term ``any contracts or agreements'' includes a memorandum of 
understanding or other amendment, interpretation or understanding 
between the parties that directly or indirectly relates to a college 
credit agreement. The Board does not believe such amendments are 
necessary. If, as a matter of contract law, any amendment or memorandum 
of understanding constitutes a part of a contract, the Board believes 
that the language in the regulation would require its disclosure. As a 
result, the Board is adopting comment 57(b)-1 as proposed.
    The Board also proposed comment 57(b)-2 in the October 2009 
Regulation Z Proposal to bar institutions of higher 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 did not receive any significant comments on comment 57(b)-2. 
Furthermore, the Board continues to believe that it is important that 
all provisions of these contracts or agreements be available to college 
students and other interested parties, and comment 57(b)-2 is adopted 
as proposed.
57(c) Prohibited Inducements
    TILA Section 140(f)(2) prohibits card issuers and creditors from 
offering 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

[[Page 7757]]

or related to an institution of higher education. Proposed Sec.  
226.57(c) generally followed the statutory language. As the Board noted 
in the October 2009 Regulation Z Proposal, 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. The Board received 
comment from some industry commenters requesting that the Board limit 
this provision to credit card accounts only. The statute specifically 
includes other open-end consumer credit plans other than credit card 
accounts, and the Board believes Congress intended to cover all open-
end consumer credit plans. Therefore, the Board is adopting Sec.  
226.57(c) as proposed.
    One industry commenter requested an exception to the restrictions 
on offering a tangible item in exchange for introducing a wide range of 
financial services to a college student. The Board notes that the 
restriction in Sec.  226.57(c) applies to inducements to apply for or 
participate in an open-end consumer credit plan only. Consequently, if 
a financial institution were to offer a tangible item to induce a 
college student to open a deposit account, for example, such item would 
not be prohibited because a deposit account is not an open-end credit 
plan. However, if a financial institution were to offer a tangible item 
to induce a college student to apply for or participate in a package of 
financial services that includes any open-end consumer credit plans, 
such items would be prohibited under Sec.  226.57(c).
    Proposed comment 57(c)-1 in the October 2009 Regulation Z Proposal 
clarified 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 also provided 
some examples of non-physical inducements that would not be considered 
tangible items, such as discounts, rewards points, or promotional 
credit terms.
    Consumer group commenters suggested that while the Board's 
interpretation of ``tangible'' item was valid, there is an alternate 
definition of ``tangible'' item as an item that is real, as opposed to 
visionary or imagined. The Board believes interpreting the term 
``tangible'' as these commenters' suggest would be inappropriate. Since 
it would be impossible for a creditor to offer an imagined item, 
defining ``tangible'' as something real would render the term 
superfluous. The Board believes that Congress meant to limit this 
prohibition to a certain class of items; otherwise, the statute would 
have prohibited the offering any kind of inducement, rather than a 
``tangible'' one. Proposed comment 57(c)-1 is therefore adopted as 
proposed.
    Under TILA Section 140(f)(2), 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. As a 
result, the Board proposed comment 57(c)-2 to clarify that if a 
tangible item is offered to a college student whether or not that 
student applies for or opens an open-end consumer credit plan, the item 
is not an inducement. Consumer group commenters opposed the Board's 
interpretation and stated that any tangible item offered to a college 
student, even if it is not conditioned on the college student applying 
for or opening an open-end consumer credit plan, is an inducement. The 
Board disagrees with this interpretation. In addition, the Board 
believes the approach suggested by consumer group commenters could 
produce unintended consequences and practical complications. For 
example, under the interpretation suggested by commenters, even a 
simple candy dish in the lobby of a bank branch or at a retailer that 
has a retail credit card program could be prohibited because of the 
possibility a college student may walk into the branch or the store and 
take a piece of candy. Therefore, the Board is adopting comment 57(c)-2 
as proposed.
    TILA Section 140(f)(2)(B) requires the Board to determine what is 
considered near the campus of an institution of higher education. As 
discussed in the October 2009 Regulation Z Proposal, the Board proposed 
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 based its 
proposal on the distances used in state and federal laws for other 
restricted activities near a school,\73\ and solicited comment on other 
appropriate ways to determine a location that is considered near the 
campus of an institution of higher education.
---------------------------------------------------------------------------

    \73\ 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).
---------------------------------------------------------------------------

    The Board received support for its proposal from various types of 
commenters, but many industry commenters thought the Board's definition 
for what is considered near campus to be too broad. Several of these 
commenters suggested that the Board provide exceptions from the 
prohibition in Sec.  226.57(c) for either retailer-creditors or bank 
branches on or near campus. Another industry commenter requested that 
the Board provide guidance on defining the campus of an institution of 
higher education. One industry commenter also suggested that the Board 
exempt on-line universities to avoid interpretations that a student's 
home might constitute a part of the ``campus.''
    The Board is adopting comment 57(c)-3 as proposed. The statute 
provides that creditors are subject to the restrictions on offering 
tangible items to college students in particular locations and makes no 
exceptions for creditors that may already be established in such 
locations. Furthermore, the Board believes that institutions of higher 
education would be the proper entities to determine the borders of 
their respective campuses. In addition, it is the Board's understanding 
that on-line universities do not define their campuses as inclusive of 
a student's home. Therefore, the Board believes it would be unnecessary 
to provide an exemption for such institutions.
    Proposed comment 57(c)-4 clarified 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). Proposed comment 57(c)-4 clarified 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. Some industry 
commenters opposed the Board's proposed comment to include offers of 
tangible items that are mailed to a college student at an address on or 
near campus. Another industry commenter requested the Board clarify 
whether e-mailed offers constituted offers mailed to an address on or 
near campus.
    Comment 57(c)-4 is adopted as proposed. As the Board discussed in 
the October 2009 Regulation Z Proposal, the statute does not 
distinguish between different methods of making offers of tangible 
items, but clearly delineates the locations where such offers may not 
be

[[Page 7758]]

made. The Board notes that the prohibition in Sec.  226.57(c) focuses 
on offering a tangible item. Therefore, creditors are not prohibited by 
the rule from mailing applications and solicitations to college 
students at an address that is on or near campus. Such mailings may 
even advertise the possibility of a tangible item for any applicant who 
is not a college student, so long as the credit has reasonable 
procedures for determining whether an applicant is a college student, 
consistent with comment 57(c)-6. Moreover, the Board does not believe 
that comment 57(c)-4 as adopted would include mailings to an e-mail 
address as it encompasses only mailings to an address that is on or 
near campus. An e-mail address does not physically exist anywhere, and 
therefore, cannot be considered an address on or near campus.
    Furthermore, under 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. The Board proposed comment 57(c)-5 to 
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.
    A credit union commenter suggested that the Board's proposal was 
too broad, particularly for credit unions that may share a similar name 
to an institution of higher education. While the Board understands the 
difficulty in complying with Sec.  226.57(c) for such creditors, the 
Board believes that the potential for confusion that a particular event 
or function is endorsed by the institution of higher education is too 
great. The Board, however, notes that comment 57(c)-6, as discussed 
below, provides guidance for procedures such creditors can put in place 
to mitigate the impact of the rule.
    Proposed comment 57(c)-6 requires creditors to have reasonable 
procedures for determining whether an applicant is a college student. 
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. Proposed comment 57(c)-6 illustrated one 
way in which a card issuer or creditor might meet this standard and 
provided that the card issuer or creditor may rely on the 
representations made by the applicant.
    The Board did not receive significant comment on this provision, 
and the proposed comment is adopted in final. As the Board discussed in 
the October 2009 Regulation Z Proposal, Sec.  226.57(c) would not 
prohibit card issuers and creditors from instituting marketing programs 
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. However, those card issuers or 
creditors that do so must have reasonable procedures for determining 
whether an applicant or participant is a college student before giving 
the applicant or participant the tangible item.
57(d) Annual Report to the Board
    The Board proposed to implement new TILA Section 127(r)(2) in Sec.  
226.57(d). Consistent with the statute, proposed Sec.  226.57(d) 
required card issuers that are a party to one or more college credit 
card agreements to submit annual reports to the Board regarding those 
agreements. Section 226.57(d) is adopted with modifications as 
discussed below.
    Proposed Sec.  226.57(d) required creditors that were a party to 
one or more college credit card agreements to register with the Board 
before submitting their first annual report. The Board is eliminating 
the registration requirement from the final rule because of technical 
changes to the Board's submission process. Proposed Sec.  226.57(d)(1) 
therefore is not included in the final rule. The Board will capture the 
identifying information that would have been captured from each issuer 
during the registration process (e.g., the issuer's name, address, and 
identifying number (such as an RSSD ID number or tax identification 
number), and the name, phone number and email address of a contact 
person at the issuer) at the time the issuer submits its annual report 
to the Board. Under the final rule, there is no requirement to register 
with the Board prior to submitting an annual report regarding college 
credit card agreements. As proposed, issuers must submit their initial 
annual report on college credit card agreements, providing information 
for the 2009 calendar year, to the Board by February 22, 2010. For each 
subsequent calendar year, issuers must submit annual reports by the 
first business day on or after March 31 of the following calendar year.
    Proposed Sec.  226.57(d) required that annual reports include a 
copy of each college credit card agreement to which the card issuer was 
a party that was in effect during the period covered by the report, as 
well as certain related information specified in new TILA Section 
127(r)(2), including the total dollar amount of payments pursuant to 
the agreement from the card issuer to the institution (or affiliated 
organization) during the period covered by the report, and how such 
amount is determined; the total 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 
final rule specifies that annual reports must include ``the method or 
formula used to determine'' the amount of payments from an issuer to an 
institution of higher education or affiliated organization during the 
reporting period, rather than ``how such amount is determined'' as 
proposed. The Board believes this more precisely describes the 
information intended to be captured under new TILA Section 127(r)(2).
    In connection with the proposal, the Board solicited comment on 
whether issuers should be required to submit additional information on 
the terms and conditions of college credit card agreements in the 
annual report, such as identifying specific 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), identifying specific terms that relate to advertising 
or marketing (such as provisions on mailing lists, on-line advertising, 
or on-campus marketing), and 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. One card issuer commenter 
argued that such additional information should not be required, citing 
the additional burden on issuers. Some consumer group commenters urged 
the Board to collect additional information including the items 
identified by the Board in the proposal as well as other information 
such as the differences in comparative rates of default and average 
outstanding balances between student and non-student accounts. The 
Board believes

[[Page 7759]]

that requiring issuers to track, assemble, and submit this information 
would impose significant costs and administrative burdens on issuers, 
and the Board does not believe that requiring issuers to submit 
additional information is necessary to achieve the purposes of new TILA 
Section 127(r)(2). Thus, no additional information requirements are 
adopted in the final rule.
    As proposed, Sec.  226.57(d) requires that each annual report 
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 clarified 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 received no comments regarding what types of documents should 
be considered memoranda of understanding, and comment 57(d)(3)-1, 
redesignated as comment 57(d)(2)-1, is adopted as proposed.
    Additional details regarding the submission process are provided in 
the Consumer and College Credit Card Agreement Submission Technical 
Specifications Document, which is published as Attachment I to this 
Federal Register notice and which will be available on the Board's 
public Web site.

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 proposed to 
implement these provisions in proposed Sec.  226.58 with additional 
guidance included in proposed Appendix N. As discussed below, proposed 
Sec.  226.58 is adopted with modifications. Proposed Appendix N has 
been eliminated from the final rule, but the provisions of proposed 
Appendix N, with certain modifications, have been incorporated into 
Sec.  226.58.
    The final rule requires that card issuers post on their Web sites, 
so as to be available to the public generally, the credit card 
agreements they offer to the public. Issuers must also submit these 
agreements to the Board quarterly for posting on the Board's public Web 
site. However, under the final rule, as proposed, issuers are not 
required to post on their publicly available Web sites, or to submit to 
the Board, credit card agreements that are no longer offered to the 
public, even if the issuer still has credit card accounts open under 
such agreements.
    In addition, the final rule requires that issuers post on their Web 
sites, or otherwise make available upon request by the cardholder, all 
of their agreements for open credit card accounts, whether or not such 
agreements are currently offered to the public. Thus, any cardholder 
will be able to access a copy of his or her own credit card agreement. 
Agreements posted (or otherwise made available) under this provision in 
the final rule may contain personally identifiable information relating 
to the cardholder, provided that the issuer takes appropriate measures 
to make the agreement accessible only to the cardholder or other 
authorized persons. In contrast, the agreements that are currently 
offered to the public and that must be posted on the issuer's Web site 
(and submitted to the Board) may not contain personally identifiable 
information.
    The final rule also contains, as proposed, a de minimis exception 
from the requirement to post on issuers' publicly available Web sites, 
and submit to the Board for posting on the Board's public Web site, 
agreements currently offered to the public. The de minimis exception 
applies to issuers with fewer than 10,000 open credit card accounts. 
The final rule also contains exceptions for private label plans offered 
on behalf of a single merchant or a group of affiliated merchants and 
for plans that are offered in order to test a new credit card product, 
provided that in each case the plan involves no more than 10,000 credit 
card accounts. However, none of these exceptions applies to the 
requirement that issuers make available by some means upon request all 
of their credit card agreements for their open credit card accounts, 
whether or not currently offered to the public.
58(a) Applicability
    The Board proposed to make Sec.  226.58 applicable to any card 
issuer that issues credit cards under a credit card account under an 
open-end (not home-secured) consumer credit plan, as defined in 
proposed Sec.  226.2(a)(15). The Board received no comments on proposed 
Sec.  226.58(a) and therefore is adopting this section as proposed. 
Thus, consistent with the approach the Board is implementing with 
respect to 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 are not covered by Sec.  226.58.
58(b) Definitions
58(b)(1) Agreement
    Proposed Sec.  226.58(b)(1) defined ``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. Proposed Sec.  226.58(b)(1) further 
provided that an agreement includes the information listed under the 
defined term ``pricing information.''
    Commenters generally were supportive of the Board's proposed 
definition of agreement, and the Board is adopting Sec.  226.58(b)(1) 
as proposed. One card issuer commenter stated that creditors should not 
be required to provide pricing information as part of agreements 
submitted to the Board. The Board disagrees. The Board continues to 
believe 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 rates, fees, and other pricing information.
    The Board proposed two comments clarifying the definition of 
agreement under Sec.  226.58(b)(1). Proposed comment 58(b)(1)-1 
clarified that an agreement is deemed to include the information listed 
under the defined term ``pricing information,'' even if the issuer does 
not otherwise include this information in the document evidencing the 
terms of the obligation. Comment 58(b)(1)-1 is adopted as proposed.
    Proposed comment 58(b)(1)-2 clarified that an agreement would not 
include documents 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. The Board received no comments on 
proposed comment 58(b)(1)-2. For organizational reasons,

[[Page 7760]]

proposed comment 58(b)(1)-2 has been eliminated and the guidance 
contained in proposed comment 58(b)(1)-2 has been moved to Sec.  
228.58(c)(8), discussed below.
    The final rule adds new comment 58(b)(1)-2, which clarifies that an 
agreement may consist of multiple documents that, taken together, 
define the legal obligation between the issuer and the consumer. As an 
example, comment 58(b)(1)-2 notes that provisions that mandate 
arbitration or allow an issuer to unilaterally alter the terms of the 
issuer's or consumer's obligation are part of the agreement even if 
they are provided to the consumer in a document separate from the basic 
credit contract. The definition of agreement under Sec.  226.58(b)(1) 
indicates that an agreement may consist of a ``document or documents'' 
(emphasis added). However, several commenters indicated that it would 
be helpful for the Board to emphasize this point, and the Board agrees 
that further clarity may assist issuers in complying with Sec.  226.58.
58(b)(2) Amends
    In connection with the proposed rule, the Board solicited comment 
on whether issuers should be required to resubmit agreements to the 
Board following minor, technical changes. Commenters overwhelmingly 
indicated that the Board should only require resubmission of agreements 
following substantive changes. Commenters including both large and 
small card issuers noted that issuers frequently make non-substantive 
changes without simultaneously making substantive changes and that 
requiring resubmission following technical changes would impose a 
significant burden on issuers while providing little or no benefit to 
consumers. The Board agrees that requiring resubmission of agreements 
following minor, technical changes would impose a significant 
administrative burden with no corresponding benefit of increased 
transparency.
    The final rule therefore includes a new definition of ``amends'' as 
Sec.  226.58(b)(2). The definition specifies that an issuer amends an 
agreement if it makes a substantive change to the agreement. A change 
is substantive if it alters the rights or obligations of the card 
issuer or the consumer under the agreement. Any change in the pricing 
information, as defined in Sec.  226.58(b)(6), is deemed to be a 
substantive change, and therefore an amendment. Under Sec.  226.58(c), 
discussed below, an issuer is only required to resubmit an agreement to 
the Board following a change to the agreement if that change 
constitutes an amendment as defined in Sec.  226.58(b)(2).
    To provide additional clarity regarding what types of changes would 
be considered amendments, the final rule includes two new comments, 
comment 58(b)(2)-1 and 58(b)(2)-2. Comment 58(b)(2)-1 gives examples of 
changes that generally would be considered substantive, such as: (i) 
Addition or deletion of a provision giving the issuer or consumer a 
right under the agreement, such as a clause that allows an issuer to 
unilaterally change the terms of an agreement; (ii) addition or 
deletion of a provision giving the issuer or consumer an obligation 
under the agreement, such as a clause requiring the consumer to pay an 
additional fee; (iii) changes that may affect the cost of credit to the 
consumer, such as changes in a clause describing how the minimum 
payment will be calculated; (iv) changes that may affect how the terms 
of the agreement are construed or applied, such as changes in a choice-
of-law provision; and (v) changes that may affect the parties to whom 
the agreement may apply, such as changes in a provision regarding 
authorized users or assignment of the agreement.
    Comment 58(b)(2)-2 gives examples of changes that generally would 
not be considered substantive, such as: (i) Correction of typographical 
errors that do not affect the meaning of any terms of the agreement; 
(ii) changes to the issuer's corporate name, logo, or tagline; (iii) 
changes to the format of the agreement, such as conversion to a booklet 
from a full-sheet format, changes in font, or changes in margins; (iv) 
changes to the name of the credit card to which the program applies; 
(v) reordering sections of the agreement without affecting the meaning 
of any terms of the agreement; (vi) adding, removing, or modifying a 
table of contents or index; and (vii) changes to titles, headings, 
section numbers, or captions.
58(b)(3) Business Day
    As proposed, Sec.  226.58(b)(3) of the final rule, corresponding to 
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. The Board received no comments regarding proposed Sec.  
226.58(b)(2).
58(b)(4) Offers
    The proposed rule provided 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. 
The Board received no comments regarding the definition of offers, and 
the Sec.  226.58(b)(4) definition, corresponding to proposed Sec.  
226.58(b)(3), is adopted as proposed.
    Several credit union commenters argued that credit cards issued by 
credit unions are not offered to the public under this definition 
because such cards are available only to credit union members. These 
commenters concluded that credit unions therefore should not be 
required to submit agreements to the Board for posting on the Board's 
Web site. The Board disagrees. The Board understands that, of the one 
hundred largest Visa and MasterCard credit card issuers in the United 
States, several dozen are credit unions, including some with hundreds 
of thousands of open credit card accounts and at least one with over 
one million open credit card accounts. In addition, credit union 
membership criteria have relaxed in recent years, in some cases 
significantly. Credit cards issued by credit unions are a significant 
source of open-end consumer credit, and exempting credit unions from 
submitting agreements to the Board would significantly lessen the 
usefulness of the Board's Web site as a comparison shopping tool for 
consumers. The final rule therefore includes new language in comment 
58(b)(4)-1, corresponding to proposed comment 58(b)(3)-1, clarifying 
that agreements for credit cards issued by credit unions are considered 
to be offered to the public even though they are available only to 
credit union members.
    The two proposed comments to the definition of offers are otherwise 
adopted as proposed. Comment 58(b)(4)-1, corresponding to proposed 
comment 58(b)(3)-1, clarifies that 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 agreements 
would be considered to be offered to the public. Comment 58(b)(4)-2, 
corresponding to proposed comment 58(b)(3)-2, clarifies that a card 
issuer is deemed to offer a credit card agreement to the public even if 
the terms of the agreement are

[[Page 7761]]

changed immediately upon opening of an account to terms not offered to 
the public.
58(b)(5) Open Account
    The proposed rule provided guidance in proposed comment 58(e)-2 
regarding the definition of open accounts for purposes of the de 
minimis exception. Proposed comment 58(e)-2 stated 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. In addition, if an account 
has only temporarily been suspended (for example, due to a report of 
unauthorized use), the account is considered open. However, 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.
    The final rule eliminates this comment and adds a new definition of 
``open account'' as Sec.  226.58(b)(5). Under Sec.  226.58(b)(5), an 
account is an ``open account'' or ``open credit card account'' if it is 
a credit card account under an open-end (not home-secured) consumer 
credit plan and either: (i) The cardholder can obtain extensions of 
credit on the account; or (ii) there is an outstanding balance on the 
account that has not been charged off. An account that has been 
suspended only temporarily (for example, due to a report by the 
cardholder of unauthorized use of the card) is considered an open 
account or open credit card account. The term open account is used in 
the de minimis, private label, and product testing exceptions under 
Sec.  226.58(c) and in Sec.  226.58(e), regarding availability of 
agreements to existing cardholders. These sections are discussed below.
    The final rule also includes new comment 58(b)(5)-1. This comment 
clarifies that, under the Sec.  226.58(b)(5) definition of open 
account, an account is considered open if either of the two conditions 
set forth in the definition are met even if the account is inactive. 
Similarly, the comment clarifies that an account is considered open 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 definition of open account included in the final rule differs 
from the guidance provided in proposed comment 58(e)-2. In particular, 
accounts closed to new activity are considered open accounts under 
Sec.  226.58(b)(5), but were not considered open accounts under the 
proposed comment. The Board is aware that, under the new definition of 
open accounts, some issuers that may have qualified for the de minimis 
exception under the proposed rule will not qualify for the exception 
under the final rule. The Board believes that the approach to accounts 
closed for new activity under the final rule more accurately reflects 
the size of an issuer's portfolio. This approach also is more 
consistent with the treatment of such accounts under other sections of 
Regulation Z.
    In addition, the proposed comment applied only to the de minimis 
exception and did not provide guidance on the meaning of open accounts 
for other purposes, including for purposes of determining availability 
of agreements to existing cardholders. Because the definition of open 
account applies to all subsections of Sec.  226.58, the addition of the 
defined term clarifies that issuers must provide a cardholder with a 
copy of his or her particular credit card agreement under Sec.  
226.58(e) even if his or her account has been closed to new activity.
58(b)(6) Pricing Information
    Proposed Sec.  226.58(b)(4) defined 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 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. The Board received a number of comments on the proposed 
definition of pricing information, and the definition is adopted with 
modifications, as discussed below, as Sec.  226.58(b)(6).
    Section 226.58(b)(6) defines the pricing information as the 
information listed in Sec.  226.6(b)(2)(i) through (b)(2)(xii) and 
(b)(4). The definition specifies that the pricing information does not 
include temporary or promotional rates and terms or rates and terms 
that apply only to protected balances.
    Under Sec.  226.58(b)(6), the pricing information continues to 
include the information listed in Sec.  226.6(b)(2)(i) through 
(b)(2)(xii), as proposed. The information listed in Sec.  226.6(b)(3) 
has been omitted from the final rule, as information listed under Sec.  
226.6(b)(3) required to be disclosed in writing pursuant to Sec.  
226.5(a)(1)(ii) is, by definition, included in Sec.  226.6(b)(2). The 
information listed in Sec.  226.6(b)(4) is included as proposed.
    The credit limit is not included in the definition of pricing 
information under the final rule. Many card issuer commenters stated 
that the Board should not include the credit limit as an element of the 
pricing information. These commenters argued that the range of credit 
limits offered in connection with a particular agreement is likely to 
be so broad that it would not assist consumers in shopping for a credit 
card and noted that existing cardholders are notified of their 
individual credit limit on their periodic statements. These commenters 
also noted that credit limits are individually tailored and change 
frequently. They argued that including the credit limit as part of the 
pricing information therefore would require issuers to update and 
resubmit agreements frequently, imposing a significant burden on card 
issuers. The Board agrees with these commenters.
    The method used to calculate minimum payments also is not included 
in the definition of pricing information under the final rule. Methods 
used to calculate minimum payments are often complex and may be 
difficult to explain in a form that is readily understandable but still 
accurate. Upon further consideration, the Board believes that including 
this information in the pricing information likely would cause 
confusion among consumers and is unlikely to assist consumers in 
shopping for a credit card.
    The Sec.  226.58(b)(6) definition of pricing information also 
excludes temporary or promotional rates and terms or rates and terms 
that apply only to protected balances. Several card issuer commenters 
noted that promotional terms change frequently and therefore become 
outdated quickly. They also noted that these terms may be offered only 
to targeted groups of consumers. Including such terms as part of the 
pricing information likely would lead to confusion, as consumers often 
would be misled into believing they could apply for a particular set of 
terms when in fact they could not. The Board agrees that including 
these terms likely would lead to substantial consumer confusion about 
the terms available from a particular issuer. Similarly, including 
rates and terms that apply only to protected balances likely would 
mislead consumers about the terms that would apply to an account 
generally.
    Consumer groups commented that the Board should require issuers to 
disclose as part of the pricing information how the credit limit is set 
and under what circumstances it may be reduced and how issuers allocate 
the minimum payment. The Board does not believe that this information 
would assist

[[Page 7762]]

consumers in shopping for a credit card. The Board has conducted 
extensive consumer testing to develop account opening disclosures that 
are meaningful and understandable to consumers. The Board believes that 
these disclosures are an appropriate basis for the pricing information 
to be submitted to the Board and provided to cardholders under Sec.  
226.58. This additional information therefore is not included in the 
definition of pricing information under the final rule.
    Other commenters suggested that the Board should use the disclosure 
requirements for credit and charge card applications and solicitations 
under Sec.  226.5a, rather than the account-opening disclosures under 
Sec.  226.6, as the basis for the pricing information definition. The 
Board continues to believe that the account-opening disclosures under 
Sec.  226.6 are a more appropriate basis for the pricing information to 
be submitted to the Board and provided to cardholders under Sec.  
226.58. For example, the Board believes that the more robust disclosure 
regarding rates required by Sec.  226.6(b)(4) would be of substantial 
assistance to consumers in comparing credit cards among different 
issuers. As proposed, the final rule continues to use Sec.  226.6 as 
the basis for the definition of pricing information.
    As proposed, the definition of pricing information makes reference 
to the provisions of Sec.  226.6 as revised by the January 2009 
Regulation Z Rule. As discussed elsewhere in this supplementary 
information, the Board has decided to retain the July 1, 2010, 
mandatory compliance date for revised Sec.  226.6, while the effective 
date of Sec.  226.58 is February 22, 2010. The definition of pricing 
information for purposes of Sec.  226.58 conforms to the requirements 
of revised Sec.  226.6(b)(2)(i) through (b)(2)(xii) and (b)(4) 
beginning on February 22, 2010, even though compliance with portions of 
revised Sec.  226.6(b) is not mandatory until July 1, 2010.
58(b)(7) Private Label Credit Card Account and Private Label Credit 
Card Plan
    In connection with the proposed rule, the Board solicited comment 
on whether the Board should create an exception applicable to small 
credit card plans offered by an issuer of any size. The Board is 
adopting in Sec.  226.58(c)(6) an exception for small private label 
credit card plans, discussed below. The final rule includes as Sec.  
226.58(b)(7) definitions for two new defined terms, ``private label 
credit card account'' and ``private label credit card plan,'' used in 
connection with that exception.
    Section 226.58(b)(7) defines a private label credit card account as 
a credit card account under an open-end (not home-secured) consumer 
credit plan with a credit card that can be used to make purchases only 
at a single merchant or an affiliated group of merchants and defines a 
private label credit card plan as all of the private label credit card 
accounts issued by a particular issuer with credit cards usable at the 
same single merchant or affiliated group of merchants.
    The final rule includes additional guidance regarding these 
definitions in four comments. Comment 58(b)(7)-1 clarifies that the 
term private label credit card account applies to any credit card 
account that meets the terms of the definition, regardless of whether 
the account is issued by the merchant or its affiliate or by an 
unaffiliated third party.
    Comment 58(b)(7)-2 clarifies that accounts with so-called co-
branded credit cards are not considered private label credit card 
accounts. Credit cards that display the name, mark, or logo of a 
merchant or affiliated group of merchants as well as the mark, logo, or 
brand of payment network are generally referred to as co-branded cards. 
While these credit cards may display the brand of the merchant or 
affiliated group of merchants as the dominant brand on the card, such 
credit cards are usable at any merchant that participates in the 
payment network. Because these credit cards can be used at multiple 
unaffiliated merchants, they are not considered private label credit 
cards under Sec.  226.58(b)(7).
    Comment 58(b)(7)-3 clarifies that an ``affiliated group of 
merchants'' means two or more affiliated merchants or other persons 
that are related by common ownership or common corporate control. For 
example, the term would include franchisees that are subject to a 
common set of corporate policies or practices under the terms of their 
franchise licenses. The term also applies to two or more merchants or 
other persons that agree among each other, by contract or otherwise, to 
accept a credit card bearing the same name, mark, or logo (other than 
the mark, logo, or brand of a payment network such as Visa or 
MasterCard), for the purchase of goods or services solely at such 
merchants or persons. For example, several local clothing retailers 
jointly agree to issue credit cards called the ``Main Street Fashion 
Card'' that can be used to make purchases only at those retailers. For 
purposes of this section, these retailers would be considered an 
affiliated group of merchants.
    Comment 58(b)(7)-4 provides examples of which credit card accounts 
constitute a private label credit card plan under Sec.  226.58(b)(7). 
As comment 58(b)(7)-4 indicates, which credit card accounts issued by a 
particular issuer constitute a private label credit card plan is 
determined by where the credit cards can be used. All of the private 
label credit card accounts issued by a particular issuer with credit 
cards that are usable at the same merchant or affiliated group of 
merchants constitute a single private label credit card plan, 
regardless of whether the rates, fees, or other terms applicable to the 
individual credit card accounts differ. Comment 58(b)(7)-4 provides the 
following example: an issuer has 3,000 open private label credit card 
accounts with credit cards usable only at Merchant A and 5,000 open 
private label credit card accounts with credit cards usable only at 
Merchant B and its affiliates. The issuer has two separate private 
label credit card plans, as defined by Sec.  226.58(b)(7)--one plan 
consisting of 3,000 open accounts with credit cards usable only at 
Merchant A and another plan consisting of 5,000 open accounts with 
credit cards usable only at Merchant B and its affiliates.
    Comment 58(b)(7)-4 notes that the example above remains the same 
regardless of whether (or the extent to which) the terms applicable to 
the individual open accounts differ. For example, assume that, with 
respect to the issuer's 3,000 open accounts with credit cards usable 
only at Merchant A in the example above, 1,000 of the open accounts 
have a purchase APR of 12 percent, 1,000 of the open accounts have a 
purchase APR of 15 percent, and 1,000 of the open accounts have a 
purchase APR of 18 percent. All of the 5,000 open accounts with credit 
cards usable only at Merchant B and Merchant B's affiliates have the 
same 15 percent purchase APR. The issuer still has only two separate 
private label credit card plans, as defined by Sec.  226.58(b)(7). The 
open accounts with credit cards usable only at Merchant A do not 
constitute three separate private label credit card plans under Sec.  
226.58(b)(7), even though the accounts are subject to different terms.
Proposed 58(c) Registration With Board
    Proposed Sec.  226.58(c) required 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. The proposed rule required issuers that had not 
previously registered with the Board (such as new issuers formed after

[[Page 7763]]

December 31, 2009) to register before the deadline for their first 
quarterly submission.
    Proposed Sec.  226.58(c) is not included in the final rule. The 
Board is eliminating the registration requirement from the final rule 
because of technical changes to the Board's submission process. The 
Board instead plans to capture the identifying information about each 
issuer that would have been captured during the registration process 
(e.g., the issuer's name, address, and identifying number (such as an 
RSSD ID number or tax identification number), and the name, phone 
number and e-mail address of a contact person at the issuer) at the 
time of each issuer's first submission of agreements to the Board. 
Under the final rule, there is no requirement to register with the 
Board prior to submitting credit card agreements.
58(c) Submission of Agreements to Board
    Proposed Sec.  226.58(d) required that each card issuer 
electronically submit to the Board on a quarterly basis the credit card 
agreements that the issuer offers to the public. Commenters did not 
oppose the general requirements of proposed Sec.  226.58(d), and the 
Board is adopting the proposed provision, redesignated as Sec.  
226.58(c), with certain modifications, as discussed below. Consistent 
with new TILA Section 122(d)(3), the Board will post the credit card 
agreements it receives on its Web site.
    The Board proposed to use its exemptive authority under Sections 
105(a) and 122(d)(5) of TILA to require issuers to submit to the Board 
only agreements currently offered to the public. Commenters generally 
were supportive of this proposed use of the Board's exemptive 
authority, and the Board received no comments indicating that issuers 
should be required to submit agreements not offered to the public. The 
Board continues to believe that, with respect to credit card agreements 
that are not currently offered to the public, the administrative burden 
on issuers of preparing and submitting agreements for posting on the 
Board's Web site would outweigh the benefit of increased transparency 
for consumers. The Board also continues to believe 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.
    As stated in the proposal, 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, as proposed, Sec.  
226.58(c) requires issuers to submit to the Board only those agreements 
the issuer currently offers to the public.
58(c)(1) Quarterly Submissions
    Proposed Sec.  226.58(d)(1) required issuers to send quarterly 
submissions to the Board no later than the first business day on or 
after January 31, April 30, July 31, and October 31 of each year. The 
proposed rule required issuers to submit: (i) The credit card 
agreements that the issuer offered to the public as of the last 
business day of the preceding calendar quarter that the 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; and (iii) notification regarding any 
credit card agreement previously submitted to the Board that the issuer 
is withdrawing. Proposed comment Sec.  226.58(d)-1 provided an example 
of the submission requirements as applied to a hypothetical issuer. 
Proposed comment 58(d)-2 clarified that an issuer is not required to 
make any submission to the Board 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.
    Commenters did not oppose the Board's approach to submission of 
agreements as described in proposed Sec.  226.58(d)(1). The Board 
therefore is adopting proposed Sec.  226.58(d)(1) and proposed comments 
58(d)-1 and 58(d)-2, redesignated in the final rule as Sec.  
226.58(c)(1) and comments 58(c)(1)-1 and 58(c)(1)-2, with certain 
modifications.
    As discussed above, the Board is eliminating from the final rule 
the requirement that issuers register with the Board before submitting 
agreements to the Board. Section 226.58(c)(1) therefore includes a new 
requirement that issuers submit along with their quarterly submissions 
identifying information relating to the card issuer and the agreements 
submitted, including the issuer's name, address, and identifying number 
(such as an RSSD ID number or tax identification number).
    In addition, Sections 226.58(c)(1) and comments 58(c)(1)-1 and 
(c)(1)-2 reflect, through use of the defined term ``amend,'' that 
issuers are required to resubmit agreements only following substantive 
changes. As discussed above, commenters overwhelmingly indicated that 
the Board should only require resubmission of agreements following 
substantive changes. The Board agrees that requiring resubmission of 
agreements following minor, technical changes would impose a 
significant administrative burden with no corresponding benefit of 
transparency. This is reflected in the final rule by requiring that 
issuers resubmit agreements under Sec.  226.58(c)(1) only when an 
agreement has been amended as defined in Sec.  226.58(b)(2).
    Several commenters asked that issuers be permitted to submit a 
complete, updated set of credit card agreements on a quarterly basis, 
rather than tracking which agreements are being modified, withdrawn, or 
added. These commenters argued that requiring issuers to track which 
agreements are being modified, withdrawn, or amended could impose a 
substantial burden on some issuers with no corresponding benefit to 
consumers. The Board agrees. The final rule therefore includes new 
comment 58(c)(1)-3, which clarifies that Sec.  226.58(c)(1) permits an 
issuer to submit to the Board on a quarterly basis a complete, updated 
set of the credit card agreements the issuer offers to the public. The 
comment gives the following example: An issuer offers agreements A, B 
and C to the public as of March 31. The issuer submits each of these 
agreements to the Board by April 30 as required by Sec.  226.58(c)(1). 
On May 15, the issuer amends agreement A, but does not make any changes 
to agreements B or C. As of June 30, the issuer continues to offer 
amended agreement A and agreements B and C to the public. At the next 
quarterly submission deadline, July 31, the issuer

[[Page 7764]]

must submit the entire amended agreement A and is not required to make 
any submission with respect to agreements B and C. The issuer may 
either: (i) Submit the entire amended agreement A and make no 
submission with respect to agreements B and C; or (ii) submit the 
entire amended agreement A and also resubmit agreements B and C. The 
comment also states that an issuer may choose to resubmit to the Board 
all of the agreements it offered to the public as of a particular 
quarterly submission deadline even if the issuer has not introduced any 
new agreements or amended any agreements since its last submission and 
continues to offer all previously submitted agreements.
    Additional details regarding the submission process are provided in 
the Consumer and College Credit Card Agreement Submission Technical 
Specifications Document, which is published as Attachment I to this 
Federal Register notice and which will be available on the Board's 
public Web site.
58(c)(2) Timing of First Two Submissions
    Proposed Sec.  226.58(d)(2), redesignated as Sec.  226.58(c)(2), is 
adopted as proposed. 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 and as proposed, the final rule 
requires 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. 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 agreement 
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 Sec.  226.58(c)(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 
Sec.  226.58(c)(4) and (5).
    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 Sec.  226.58(c)(2), no submission to the Board is 
due on April 30, 2010, and the issuer instead must submit the new 
agreement no later than August 2, 2010.
    Several card issuer commenters suggested that issuers' initial 
submission should be due on a date later than February 22, 2010. The 
Board is aware that many issuers are likely to make changes to their 
agreements related to other provisions of the Credit Card Act before 
the February 22, 2010, effective date and that agreements as of 
December 31, 2009, therefore will be somewhat outdated by the time they 
are sent to the Board on February 22, 2010. The Board believes, 
however, that it is important to provide consumers with access to 
issuer's credit card agreements promptly following the statutory 
effective date.
58(c)(3) Amended Agreements
    Proposed Sec.  226.58(d)(3) required that, if an issuer makes 
changes to an agreement previously submitted to the Board, the issuer 
must 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 became effective. The proposed rule also 
specified that, 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 with respect to that agreement is required. Two proposed 
comments, proposed comments 58(d)-3 and 58(d)-4, provided examples of 
situations in which resubmission would not and would be required, 
respectively. Proposed comment 58(d)-5 clarified that an issuer could 
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 changed terms and that revisions could not be submitted as 
separate riders.
    The proposed rule required credit card issuers to resubmit 
agreements following any change, regardless of whether that change 
affects the substance of the agreement. As discussed above, the Board 
solicited comment on whether issuers should be required to resubmit 
agreements to the Board following minor, technical changes. Commenters 
overwhelmingly indicated that the Board should only require 
resubmission of agreements following substantive changes.
    The Board agrees with these commenters that requiring resubmission 
of agreements following minor, technical changes would impose a 
significant administrative burden with no corresponding benefit of 
increased transparency to consumers. The final rule therefore includes 
a new definition of ``amends'' in Sec.  226.58(b)(2), as discussed 
above. Under the final rule, an issuer is only required to resubmit an 
agreement to the Board following a change to the agreement if that 
change constitutes an amendment as defined in Sec.  226.58(b)(2). The 
definition in Sec.  226.58(b)(2) specifies that an issuer amends an 
agreement if it makes a substantive change to the agreement. A change 
is substantive if it alters the rights or obligations of the card 
issuer or the consumer under the agreement. The definition specifies 
that any change in the pricing information is deemed to be a 
substantive change and therefore an amendment. Section 226.58(c)(3) and 
comments 58(c)(3)-1, 58(c)(3)-2, and 58(c)(3)-3 (corresponding to 
proposed Sec.  226.58(d)(3) and proposed comments 58(d)-3, 58(d)-4, and 
58(d)-5) have been revised to incorporate the defined term ``amend'' 
but otherwise are adopted as proposed with several technical changes.
    Under Sec.  226.58(c)(3), corresponding to proposed Sec.  
226.58(d)(3), if a credit card agreement has been submitted to the 
Board, the agreement has not been amended as defined in Sec.  
226.58(b)(2) and the card issuer continues to offer the agreement to 
the public, no additional submission regarding that agreement is 
required. For example, as described in comment 58(c)(3)-1, 
corresponding to 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 Sec.  226.58(c)(1). As of 
March 31, the issuer has not 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 a credit card agreement that previously has been submitted to 
the Board is amended, as defined in Sec.  226.58(b)(2), the final rule 
provides that the card issuer must submit the entire amended agreement 
to the Board by the first quarterly submission deadline after the last 
day of the calendar quarter in which the change became effective. 
Comment 58(c)(3)-2, corresponding to proposed comment 58(d)-4, gives 
the following example: an issuer submits an agreement to the

[[Page 7765]]

Board on October 31. On November 15, the issuer changes the balance 
computation method used under the agreement. Because an element of the 
pricing information has changed, the agreement has been amended and the 
issuer must submit the entire amended agreement to the Board no later 
than January 31.
    Comment 58(c)(3)-3, corresponding to proposed comment 58(d)-5, 
explains that an issuer may not fulfill the requirement to submit the 
entire amended agreement to the Board by submitting a change-in-terms 
or similar notice covering only the terms that have changed. In 
addition, the comment emphasizes that, as required by Sec.  
226.58(c)(8)(iv), amendments must be integrated into the text of the 
agreement (or the addenda described in Sec.  226.58(c)(8)), 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 the addendum of pricing information, as required by Sec.  
226.58(c)(8). 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 pricing information 
addendum. Instead, the issuer must revise the pricing information 
addendum 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 pricing information addendum has changed.
58(c)(4) Withdrawal of Agreements
    Proposed Sec.  226.58(d)(4), redesignated as Sec.  226.58(c)(4), 
and proposed comment 58(d)-6, redesignated as comment 58(c)(4)-1, are 
adopted as proposed with one technical change. The Board received no 
comments regarding this section and the accompanying commentary. As 
proposed, Sec.  226.58(c)(4) requires an issuer to notify the Board if 
the issuer ceases to offer any agreement previously submitted to the 
Board 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 comment 58(c)(4)-1, 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(c)(5) De Minimis Exception
    Proposed Sec.  226.58(e) provided an exception to the requirement 
that credit card agreements be submitted to the Board for issuers with 
fewer than 10,000 open credit card accounts under open-end (not home-
secured) consumer credit plans. Commenters generally were supportive of 
this provision, and proposed Sec.  226.58(e) is incorporated into the 
final rule as Sec.  226.58(c)(5) with certain modifications as 
discussed below.
    The proposal noted that 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 expressed its belief that a de minimis 
exception should be created, but noted that it might not be feasible to 
base such an exception on the number of accounts under a credit card 
plan. In particular, the Board stated that it was unaware of a way to 
define ``credit card plan'' that would not divide issuers' portfolios 
into such small units that large numbers of credit card agreements 
could fall under the de minimis exception. The Board therefore proposed 
a de minimis exception for issuers with fewer than 10,000 open credit 
card accounts. Under the proposed exception, such issuers were not 
required to submit any credit card agreements to the Board.
    As described below, the Board is adopting as part of the final rule 
two exceptions based on the number of accounts under a credit card 
plan--the private label credit card exception and the product testing 
exception. The Board continues to believe, however, that the 
administrative burden on small issuers of preparing and submitting 
agreements would outweigh the benefit of increased transparency from 
including those agreements on the Board's Web site. The final rule 
therefore includes the proposed Sec.  226.58(e) de minimis exception 
for issuers with fewer than 10,000 open accounts substantially as 
proposed, redesignated as Sec.  226.58(c)(5).
    In connection with the proposed rule, the Board solicited comment 
on the 10,000 open account threshold for the de minimis exception. 
Several commenters supported the 10,000 account threshold. Several 
other commenters stated that the threshold should be raised to 25,000 
open accounts. The Board continues to believe that 10,000 open accounts 
is an appropriate threshold for the de minimis exception, and that 
threshold is retained in the final rule. One commenter stated that 
accounts with terms and conditions that are no longer offered to the 
public should not be counted toward the 10,000 account threshold. The 
Board believes that this exception is unworkable and could bring large 
numbers of issuers within the de minimis exception. The final rule 
therefore does not incorporate this approach.
    Proposed Sec.  226.58(e)(1) has been modified to incorporate the 
defined term ``open account,'' discussed above, and redesignated as 
Sec.  226.58(c)(5)(i), but otherwise is adopted as proposed. Under 
Sec.  226.58(c)(5)(i), a card issuer is not required to submit any 
credit card agreements to the Board if the card issuer has fewer than 
10,000 open credit card accounts as of the last business day of the 
calendar quarter.
    The final rule includes new comment 58(c)(5)-1, which clarifies the 
relationship between the de minimis exception and the private label 
credit card and product testing exceptions. As comment 58(c)(5)-1 
explains, the de minimis exception is distinct from the private label 
credit card exception under Sec.  226.58(c)(6) and the product testing 
exception under Sec.  226.58(c)(7). The de minimis exception provides 
that an issuer with fewer than 10,000 open credit card accounts is not 
required to submit any agreements to the Board, regardless of whether 
those agreements qualify for the private label credit card exception or 
the product testing exception. In contrast, the private label credit 
card exception and the product testing exception provide that an issuer 
is not required to submit to the Board agreements offered solely in 
connection with certain types of credit card plans with fewer than 
10,000 open accounts, regardless of the issuer's total number of open 
accounts.
    Proposed comments 58(e)-1 and 58(e)-3, redesignated as comments 
58(c)(5)-2 and 58(c)(5)-3, have been modified to incorporate the 
defined term ``open account,'' but otherwise are adopted as proposed. 
Comment 58(c)(5)-2 gives the following example of an issuer that 
qualifies for the de minimis exception: 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 as of September 30. The issuer 
is not required to submit any agreements to the Board by October 31

[[Page 7766]]

because the issuer qualifies for the de minimis exception. Comment 
58(c)(5)-3 clarifies that whether an issuer qualifies for the de 
minimis exception is determined as of the last business day of the 
calendar quarter and gives the following example: as of December 31, an 
issuer offers three agreements to the public and has 9,500 open credit 
card accounts. 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(c)(1) by April 30.
    Proposed comment 58(e)-2 provided guidance regarding the definition 
of open accounts for purposes of the de minimis exception. As discussed 
above, the Board has eliminated proposed comment 58(e)-2 from the final 
rule and added a definition of ``open account'' as Sec.  226.58(b)(5).
    Proposed Sec.  226.58(e)(2), redesignated as Sec.  
226.58(c)(5)(ii), is adopted as proposed. Section 226.58(c)(5)(ii) 
specifies 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 no later than the first quarterly 
submission deadline after the date as of which the issuer ceased to 
qualify. Proposed comment 58(e)-4, redesignated as comment 58(c)(5)-4, 
has been modified to incorporate the defined term ``open account,'' but 
otherwise is adopted as proposed. Comment 58(c)(5)-4 clarifies that 
whether an issuer has ceased to qualify for the de minimis exception is 
determined as of the last business day of the calendar quarter and 
provides the following example: As of June 30, an issuer offers three 
agreements to the public and has 9,500 open credit card accounts. The 
issuer is not required to submit any agreements to the Board under 
Sec.  226.58(c)(1) 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 Sec.  226.58(c)(5) 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), redesignated as Sec.  
226.58(c)(5)(iii), has been modified to reflect the elimination of the 
requirement to register with the Board, as discussed above, but 
otherwise is adopted substantively as proposed. Section 
226.58(c)(5)(iii) provides that if an issuer that did not previously 
qualify for the de minimis exception qualifies for the de minimis 
exception, the card issuer must continue to make quarterly submissions 
to the Board until the issuer notifies the Board that the issuer is 
withdrawing all agreements it previously submitted to the Board.
    Proposed comment 58(e)-5, redesignated as comment 58(c)(5)-5, is 
similarly modified to reflect the elimination of the registration 
requirement, but otherwise is adopted substantively as proposed. 
Comment 58(c)(5)-5 gives the following example of the option to 
withdraw agreements under Sec.  226.58(c)(5)(iii): An issuer has 10,001 
open accounts and offers three agreements to the public as of December 
31. The issuer has submitted each of the three agreements to the Board 
as required under Sec.  226.58(c)(1). 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(c)(1). 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 as required by Sec.  226.58(c)(1). The issuer might choose 
not to withdraw its agreements if, for example, the issuer believes 
that it likely will cease to qualify for the de minimis exception again 
in the near future.
58(c)(6) Private Label Credit Card Exception
    The final rule includes new section Sec.  226.58(c)(6), which 
provides an exception to the requirement that credit card agreements be 
submitted to the Board for private label credit card plans with fewer 
than 10,000 open accounts. 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. As discussed above, the final rule includes a de 
minimis exception for issuers with fewer than 10,000 total open credit 
card accounts as Sec.  226.58(c)(5). As also disclosed above, the Board 
solicited comment in connection with the proposed rule regarding 
whether the Board should create a de minimis exception applicable to 
small credit card plans offered by an issuer of any size and, if so, 
how the Board should define a credit card plan. Commenters generally 
supported creating such an exception. One card issuer commenter 
suggested that the Board create an exception for credit cards that can 
only be used for purchases at a single merchant or affiliated group of 
merchants, commonly referred to as private label credit cards, 
regardless of issuer size.
    The Board is adopting such an exception. The Board believes that 
the administrative burden on issuers of preparing and submitting to the 
Board agreements for private label credit card plans with a de minimis 
number of consumer account holders outweighs the benefit of increased 
transparency of including these agreements on the Board's Web site. The 
small size of these credit card plans suggests that it is unlikely that 
most consumers would regard these products as comparable alternatives 
to other credit card products. In addition, the Board is aware that the 
number of small private label credit card programs is very large. 
Including agreements associated with these plans on the Board's Web 
site would significantly increase the number of agreements, potentially 
making the Web site less useful to consumers as a comparison shopping 
tool. Also, the Board believes that, with respect to private label 
credit cards, a credit card plan can be defined sufficiently narrowly 
to avoid dividing issuers' portfolios into units so small that large 
numbers of credit card agreements would fall under the exception.
    Under Sec.  226.58(c)(6)(i), a card issuer is not required to 
submit to the Board a credit card agreement if, as of the last business 
day of the calendar quarter, the agreement: (A) Is offered for accounts 
under one or more private label credit card plans each of which has 
fewer than 10,000 open accounts; and (B) is not offered to the public 
other than for accounts under such a plan.

[[Page 7767]]

    As discussed above, a private label credit card plan is defined in 
Sec.  226.58(b)(7) as all of the private label credit card accounts 
issued by a particular issuer with credit cards usable at the same 
single merchant or affiliated group of merchants. For example, all of 
the private label credit card accounts issued by Issuer A with credit 
cards usable only at Merchant B and Merchant B's affiliates constitute 
a single private label credit card plan under Sec.  226.58(b)(7).
    The exception is limited to agreements that are ``not offered to 
the public other than for accounts under [one or more private label 
credit card plans each of which has fewer than 10,000 open accounts]'' 
in order to ensure that issuers are required to submit to the Board 
agreements that are offered in connection with general purpose credit 
card accounts or credit card accounts under large (i.e., 10,000 or more 
open accounts) private label plans, regardless of whether those 
agreements also are used in connection with a small (i.e., fewer than 
10,000 open accounts) private label credit card plan. The Board is 
concerned that, without this limitation, large numbers of credit card 
agreements could fall under the private label credit card exception.
    Section 226.58(c)(6)(ii) provides that if an agreement that 
previously qualified for the private label credit card exception ceases 
to qualify, the card issuer must submit the agreement to the Board no 
later than the first quarterly submission deadline after the date as of 
which the agreement ceased to qualify. Section 226.58(c)(6)(iii) 
provides that if an agreement that did not previously qualify for the 
private label credit card exception qualifies for the exception, the 
card issuer must continue to make quarterly submissions to the Board 
with respect to that agreement until the issuer notifies the Board that 
the agreement is being withdrawn.
    The final rule includes six related comments. Comment 58(c)(6)-1 
gives the following two examples of how the exception applies. In the 
first example, an issuer offers to the public a credit card agreement 
offered solely for private label credit card accounts with credit cards 
that can be used only at Merchant A. The issuer has 8,000 open accounts 
with such credit cards usable only at Merchant A. The issuer is not 
required to submit this agreement to the Board under Sec.  226.58(c)(1) 
because the agreement is offered for accounts under a private label 
credit card plan (i.e., the 8,000 private label credit card accounts 
with credit cards usable only at Merchant A), that private label credit 
card plan has fewer than 10,000 open accounts, and the credit card 
agreement is not offered to the public other than for accounts under 
that private label credit card plan.
    In the second example, in contrast, the same issuer also offers to 
the public a different credit card agreement that is offered solely for 
private label credit card accounts with credit cards usable only at 
Merchant B. The issuer has 12,000 open accounts with such credit cards 
usable only at Merchant B. The private label credit card exception does 
not apply. Although this agreement is offered for a private label 
credit card plan (i.e., the 12,000 private label credit card accounts 
with credit cards usable only at Merchant B), and the agreement is not 
offered to the public other than for accounts under that private label 
credit card plan, the private label credit card plan has more than 
10,000 open accounts. (The issuer still is not required to submit to 
the Board the agreement offered in connection with credit cards usable 
only at Merchant A, as each agreement is evaluated separately under the 
private label credit card exception.)
    Comment 58(c)(6)-2 clarifies that whether the private label credit 
card exception applies is determined on an agreement-by-agreement 
basis. Therefore, some agreements offered by an issuer may qualify for 
the private label credit card exception even though the issuer also 
offers other agreements that do not qualify, such as agreements offered 
for accounts with cards usable at multiple unaffiliated merchants or 
agreements offered for accounts under private label credit card plans 
with 10,000 or more open accounts.
    Comment 58(c)(6)-3 clarifies the relationship between the private 
label credit card exception and the Sec.  226.58(c)(5) de minimis 
exception. The comment notes that the two exceptions are distinct. The 
private label credit card exception exempts an issuer from submitting 
certain agreements under a private label plan to the Board, regardless 
of the issuer's overall size as measured by the issuer's total number 
of open accounts. In contrast, the de minimis exception exempts an 
issuer from submitting any credit card agreements to the Board if the 
issuer has fewer than 10,000 total open accounts. For example, an 
issuer offers to the public two credit card agreements. Agreement A is 
offered solely for private label credit card accounts with credit cards 
usable only at Merchant A. The issuer has 5,000 open credit card 
accounts with such credit cards usable only at Merchant A. Agreement B 
is offered solely for credit card accounts with cards usable at 
multiple unaffiliated merchants that participate in a major payment 
network. The issuer has 40,000 open credit card accounts with such 
payment network cards. The issuer is not required to submit agreement A 
to the Board under Sec.  226.58(c)(1) because agreement A qualifies for 
the private label credit card exception under Sec.  226.58(c)(6). 
Agreement A is offered for accounts under a private label credit card 
plan with fewer than 10,000 open accounts (i.e., the 5,000 private 
label credit card accounts with credit cards usable only at Merchant A) 
and is not otherwise offered to the public. The issuer is required to 
submit agreement B to the Board under Sec.  226.58(c)(1). The issuer 
does not qualify for the de minimis exception under Sec.  226.58(c)(5) 
because it has more than 10,000 open accounts, and agreement B does not 
qualify for the private label credit card exception under Sec.  
226.58(c)(6) because it is not offered solely for accounts under a 
private label credit card plan with fewer than 10,000 open accounts.
    Comment 58(c)(6)-4 gives the following example of when an agreement 
would not qualify for the private label credit card exception because 
it is offered to the public other than for accounts under a private 
label credit card plan with fewer than 10,000 open accounts. An issuer 
offers an agreement for private label credit card accounts with credit 
cards usable only at Merchant A. This private label plan has 9,000 such 
open accounts. The same agreement also is offered for credit card 
accounts with credit cards usable at multiple unaffiliated merchants 
that participate in a major payment network. The agreement does not 
qualify for the private label credit card exception. The agreement is 
offered for accounts under a private label credit card plan with fewer 
than 10,000 open accounts. However, the agreement also is offered to 
the public for accounts that are not part of a private label credit 
card plan, and therefore does not qualify for the private label credit 
card exception.
    Comment 58(c)(6)-4 notes that, similarly, an agreement does not 
qualify for the private label credit card exception if it is offered in 
connection with one private label credit card plan with fewer than 
10,000 open accounts and one private label credit card plan with 10,000 
or more open accounts. For example, an issuer offers a single credit 
card agreement to the public. The agreement is offered for two types of 
accounts. The first type of account is a private label credit card 
account with a credit card usable only at Merchant A. The second type 
of account is a private label credit card account with a credit

[[Page 7768]]

card usable only at Merchant B. The issuer has 10,000 such open 
accounts with credit cards usable only at Merchant A and 5,000 such 
open accounts with credit cards usable only at Merchant B. The 
agreement does not qualify for the private label credit card exception. 
While the agreement is offered for accounts under a private label 
credit card plan with fewer than 10,000 open accounts (i.e., the 5,000 
open accounts with credit cards usable only at Merchant B), the 
agreement is also offered for accounts not under such a plan (i.e., the 
10,000 open accounts with credit cards usable only at Merchant A).
    Comment 58(c)(6)-5 clarifies that the private label exception 
applies even if the same agreement is used for more than one private 
label credit card plan with fewer than 10,000 open accounts. For 
example, a card issuer has 15,000 total open private label credit card 
accounts. Of these, 7,000 accounts have credit cards usable only at 
Merchant A, 5,000 accounts have credit cards usable only at Merchant B, 
and 3,000 accounts have credit cards usable only at Merchant C. The 
card issuer offers to the public a single credit card agreement that is 
offered for all three types of accounts and is not offered for any 
other type of account. The issuer is not required to submit the 
agreement to the Board under Sec.  226.58(c)(1). The agreement is used 
for three different private label credit card plans (i.e., the accounts 
with credit cards usable at Merchant A, the accounts with credit cards 
usable at Merchant B, and the accounts with credit cards usable at 
Merchant C), each of which has fewer than 10,000 open accounts, and the 
issuer does not offer the agreement for any other type of account. The 
agreement therefore qualifies for the private label credit card 
exception under Sec.  226.58(c)(6).
    Comment 58(c)(6)-6 clarifies that the private label credit card 
exception applies even if an issuer offers more than one agreement in 
connection with a particular private label credit card plan. For 
example, an issuer has 5,000 open private label credit card accounts 
with credit cards usable only at Merchant A. The issuer offers to the 
public three different agreements each of which may be used in 
connection with private label credit card accounts with credit cards 
usable only at Merchant A. The agreements are not offered for any other 
type of credit card account. The issuer is not required to submit any 
of the three agreements to the Board under Sec.  226.58(c)(1) because 
each of the agreements is used for a private label credit card plan 
which has fewer than 10,000 open accounts and none of the three is 
offered to the public other than for accounts under such a plan.
58(c)(7) Product Testing Exception
    The final rule includes new section Sec.  226.58(c)(7), which 
provides an exception to the requirement that credit card agreements be 
submitted to the Board for certain agreements offered to the public 
solely as part of product test by an issuer. As described above, 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. As discussed above, the 
final rule includes a de minimis exception for issuers with fewer than 
10,000 open credit card accounts as Sec.  226.58(c)(5). As also 
discussed above, the Board solicited comment in connection with the 
proposed rule regarding whether the Board should create a de minimis 
exception applicable to small credit card plans offered by an issuer of 
any size and, if so, how the Board should define a credit card plan. 
Commenters generally supported creating such an exception. One card 
issuer commenter suggested that the Board create an exception for 
agreements offered to limited groups of consumers in connection with 
product testing by an issuer, regardless of issuer size.
    The Board is adopting such an exception. The Board believes that 
the administrative burden on issuers of preparing and submitting to the 
Board agreements used for a small number of consumer account holders in 
connection with a product test by an issuer outweighs the benefit of 
increased transparency of including these agreements on the Board's Web 
site. The Board understands that issuers test new credit card 
strategies and products by offering credit cards to discrete, targeted 
groups of consumers for a limited time. Posting these agreements on the 
Board's and issuers' Web sites would not facilitate comparison shopping 
by consumers, as these terms are offered only to a limited group of 
consumers for a short period of time. Including these agreements could 
mislead consumers into believing that these terms are available more 
generally. In addition, posting these agreements would make issuer 
testing strategies transparent to competitors. Also, the Board believes 
that, with respect to product tests, a credit card plan can be defined 
sufficiently narrowly to avoid dividing issuers' portfolios into units 
so small that large numbers of credit card agreements would fall under 
the exception.
    Under Sec.  226.58(c)(7)(i), an issuer is not required to submit to 
the Board a credit card agreement if, as of the last day of the 
calendar quarter, the agreement: (A) Is offered as part of a product 
test offered to only a limited group of consumers for a limited period 
of time; (B) is used for fewer than 10,000 open accounts; and (C) is 
not offered to the public other than in connection with such a product 
test. Section 226.58(c)(7)(ii) provides that if an agreement that 
previously qualified for the product testing exception ceases to 
qualify, the card issuer must submit the agreement to the Board no 
later than the first quarterly submission deadline after the date as of 
which the agreement ceased to qualify. Section 226.58(c)(7)(iii) 
provides that if an agreement that did not previously qualify for the 
product testing exception qualifies for the exception, the card issuer 
must continue to make quarterly submissions to the Board with respect 
to that agreement until the issuer notifies the Board that the 
agreement is being withdrawn.
58(c)(8) Form and Content of Agreements Submitted to the Board
    Many commenters on the proposed rule expressed confusion about the 
form and content requirements for agreements submitted to the Board. In 
order to make this information more readily noticeable and 
understandable, the Board is eliminating proposed Appendix N and 
incorporating the form and content requirements for agreements 
submitted to the Board as new Sec.  226.58(c)(8). The form and content 
requirements under Sec.  226.58(c)(8) are organized into four 
subsections, discussed below: (i) Form and content generally; (ii) 
pricing information; (iii) optional variable terms addendum; and (iv) 
integrated agreement. Form and content requirements included in 
proposed Appendix N for agreements posted on issuers' Web sites under 
proposed Sec.  226.58(f)(1), redesignated as Sec.  226.58(d), and 
individual cardholders' agreements provided under proposed Sec.  
226.58(f)(2), redesignated as Sec.  226.58(e), have similarly been 
incorporated into those sections and are discussed below.

[[Page 7769]]

58(c)(8)(i) Form and Content Generally
    Section 226.58(c)(8)(i)(A) states that each agreement must contain 
the provisions of the agreement and the pricing information in effect 
as of the last business day of the preceding calendar quarter, as 
proposed in Appendix N, paragraph 1. One commenter questioned whether a 
change-in-terms notice should be integrated into an agreement where the 
change-in-terms notice is not yet effective. The final rule therefore 
includes new comment 58(c)(8)-1, which gives the following example of 
the application of Sec.  226.5(c)(8)(i)(A): on June 1, an issuer 
decides to decrease the purchase APR associated with one of the 
agreements it offers to the public. The change in the APR will become 
effective on August 1. If the issuer submits the agreement to the Board 
on July 31 (for example, because the agreement has been otherwise 
amended), the agreement submitted should not include the new lower APR 
because that APR was not in effect on June 30, the last business day of 
the preceding calendar quarter.
    Section 226.58(c)(8)(i)(B) states that agreements submitted to the 
Board must not include any personally identifiable information relating 
to any cardholder, such as name, address, telephone number, or account 
number, as proposed in Appendix N, paragraph 1.
    Section 226.58(c)(8)(i)(C) identifies certain items that are not 
deemed to be part of the agreement for purposes of Sec.  226.58, and 
therefore are not required to be included in submissions to the Board. 
These items are as follows: (i) Disclosures required by state or 
federal law, such as affiliate marketing notices, privacy policies, or 
disclosures under the E-Sign Act; (ii) solicitation materials; (iii) 
periodic statements; (iv) ancillary agreements between the issuer and 
the consumer, such as debt cancellation contracts or debt suspension 
agreements; (v) offers for credit insurance or other optional products 
and other similar advertisements; and (vi) 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, or other 
information about card security.
    This list incorporates items identified as excluded from agreements 
in proposed Appendix N, paragraph 1, and proposed comment 58(b)(1)-2. 
In addition, one commenter asked that Board clarify that the agreement 
does not include ancillary agreements between the issuer and the 
consumer, such as debt cancellation contracts or debt suspension 
agreements. Because the Board agrees that including such ancillary 
agreements would not assist consumers in shopping for a credit card, 
this item is included in Sec.  226.58(c)(8)(i)(C).
    The final rule also includes new Sec.  226.58(c)(8)(i)(D), which 
provides that agreements submitted to the Board must be presented in a 
clear and legible font.
58(c)(8)(ii) Pricing Information
    Section 226.58(c)(8)(ii)(A) of the final rule specifies that 
pricing information must be set forth in a single addendum to the 
agreement that contains only the pricing information. This differs from 
proposed Appendix N, paragraph 1, which required issuers to set forth 
any information not uniform for all cardholders, including the pricing 
information, in an addendum to the agreement.
    The Board believes, on the basis of consumer testing conducted in 
the context of developing the requirements for account-opening 
disclosures, that the pricing information (which is defined by 
reference to the requirements for account-opening disclosures under 
Sec.  226.6) is particularly relevant to consumers in choosing a credit 
card. Upon further consideration, the Board has concluded that this 
information could be difficult for consumers to find if it is 
integrated into the text of the credit card agreement. The Board 
believes that requiring pricing information to be attached as a 
separate addendum would ensure that this information is easily 
accessible to consumers. The Board understands that cardholder 
agreements may be complex and densely worded, and the Board is 
concerned that including pricing information within such a document 
could hamper the ability of consumers to find and comprehend it. The 
Board therefore is requiring under Sec.  226.58(c)(8)(ii)(A) that this 
information be provided in a separate addendum.
    The final rule also includes comment 58(c)(8)-2, which clarifies 
that pricing information must be set forth in the separate addendum 
described in Sec.  226.58(c)(8)(ii)(A) even if it is also stated 
elsewhere in the agreement.
    Section 226.58(c)(8)(ii)(B) of the final rule provides that pricing 
information that may vary from one cardholder to another depending on 
the cardholder's creditworthiness or state of residence or other 
factors must be disclosed either by setting forth all the possible 
variations (such as purchase APRs of 13 percent, 15 percent, 17 
percent, and 19 percent) or by providing a range of possible variations 
(such as purchase APRs ranging from 13 percent to 19 percent). This 
corresponds with a provision from proposed Appendix N, paragraph 1.
    One commenter stated that issuers should have the flexibility to 
either provide pricing information and other varying information in an 
addendum or to provide each variation as a separate agreement. The 
Board's final rule does not provide this flexibility with respect to 
pricing information. The Board understands that issuers offer a range 
of terms and conditions and that issuers may make these terms and 
conditions available in a variety of different combinations, 
particularly with respect to items included in the pricing information. 
The Board is aware that the number of variations of pricing information 
is extremely large, and believes that including each of these 
variations on the Board's Web site likely would render the number of 
agreements provided on the Web site too large to be helpful to most 
consumers. For example, an issuer might offer credit cards with a 
purchase APR of 12 percent, 13 percent, 14 percent, 15 percent, 16 
percent or 17 percent, an annual fee of $0, $20, or $40, and one of 
three debt suspension coverage fees. Including each of the 54 possible 
combinations of these terms as a separate agreement on the Board's Web 
site would likely be overwhelming to consumers shopping for a credit 
card.
    The final rule includes comment 58(c)(8)-3, which clarifies that 
variations in pricing information do not constitute a separate 
agreement for purposes of Sec.  226.58(c). The comment provides the 
following example: an issuer offers two types of credit card accounts 
that differ only with respect to the purchase APR. The purchase APR for 
one type of account is 15 percent, while the purchase APR for the other 
type of account is 18 percent. The provisions of the agreement and 
pricing information for the two types of accounts are otherwise 
identical. The issuer should not submit to the Board one agreement with 
a pricing information addendum listing a 15 percent purchase APR and 
another agreement with a pricing information addendum listing an 18 
percent purchase APR. Instead, the issuer should submit to the Board 
one agreement with a pricing information addendum listing possible 
purchase APRs of 15 percent and 18 percent.
    Section 226.58(c)(8)(ii)(C) of the final rule provides that if a 
rate included in the pricing information is a variable rate, the issuer 
must identify the index or formula used in setting the rate and the 
margin. Rates that may vary from one cardholder to another must be

[[Page 7770]]

disclosed by providing the index and the possible margins (such as the 
prime rate plus 5 percent, 8 percent, 10 percent, or 12 percent) or the 
range of possible margins (such as the prime rate plus from 5 percent 
to 12 percent). The value of the rate and the value of the index are 
not required to be disclosed.
    Several card issuer commenters requested that issuers be permitted 
to provide interest rate information as an index and range of margins. 
These commenters argued that updating and resubmitting agreements every 
time an underlying index changes would be a substantial burden on 
issuers that would not provide a corresponding benefit to consumers. 
The Board agrees with these commenters. For purposes of comparison 
shopping for credit cards using the Board's Web site, consumers would 
be able to compare the margins offered by issuers using the same index 
and would be able to reference other on-line resources that provide the 
current values of financial indices to compare the rates offered by 
issuers using different indices. To provide uniformity in how variable 
rates are disclosed, the Board is requiring that such rates be provided 
as an index and margin, list of possible margins or range of possible 
margins.
58(c)(8)(iii) Optional Variable Terms Addendum
    Section 226.58(c)(8)(iii) of the final rule provides that 
provisions of the agreement other than the pricing information that may 
vary from one cardholder to another depending on the cardholder's 
creditworthiness or state of residence or other factors may be set 
forth in a single addendum to the agreement separate from the pricing 
information addendum. This differs from the provisions of proposed 
Appendix N, paragraph 1, which required issuers to set forth any 
information not uniform for all cardholders in a single addendum to the 
agreement.
    As noted above, one commenter stated that issuers should have the 
flexibility to either provide pricing information and other varying 
information in an addendum or to provide each variation as a separate 
agreement. The Board's final rule provides this flexibility with 
respect to provisions of the agreement other than the pricing 
information. The Board understands that there is substantially less 
variation in the credit card agreements offered by a particular issuer 
with respect to terms other than pricing information. The Board 
therefore believes that providing issuers with flexibility regarding 
how these terms are disclosed is unlikely to result in a volume of data 
on the Board's Web site that is overwhelming to consumers.
    The final rule also includes comment 58(c)(8)-4, which gives 
examples of provisions that might be included in the optional variable 
terms addendum. For example, the addendum might include a clause that 
is required by law to be included in credit card agreements in a 
particular state but not in other states (unless, for example, a clause 
is included in the agreement used for all cardholders under a heading 
such as ``For State X Residents''), the name of the credit card plan to 
which the agreement applies (if this information is included in the 
agreement), or the name of a charitable organization to which donations 
will be made in connection with a particular card (if this information 
is included in the agreement).
58(c)(8)(iv) Integrated Agreement
    Section 226.58(c)(8)(iv) incorporates provisions of proposed 
Appendix N, paragraph 1, stating 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 pricing information 
addendum and optional variable terms addendum described in Sec.  
226.58(c)(8)(ii) and (c)(8)(iii)). Changes in the provisions or pricing 
information must be integrated into the body of the agreement, the 
pricing information addendum or the optional variable terms addendum, 
as appropriate.
    The final rule also includes new comment 58(c)(8)-5, which provides 
clarification regarding the integrated agreement requirement. Comment 
58(c)(8)-5 explains that only two addenda may be submitted as part of 
an agreement--the pricing information addendum and optional variable 
terms addendum described in Sec.  226.58(c)(8). Changes in provisions 
or pricing information must be integrated into the body of the 
agreement, pricing information addendum, or optional variable terms 
addendum. 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 two 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 the Board stated in connection with the proposal, 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 the 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 this would impose a significant burden 
on consumers attempting to shop for credit cards. The Board also 
believes that consumers in many instances would draw incorrect 
conclusions about which terms have been changed or superseded, causing 
these consumers to be misled regarding the credit card terms that are 
currently available. This would hinder the ability of consumers to 
understand and to effectively compare the terms offered by various 
issuers. The Board believes that issuers are better placed than 
consumers to assemble this information correctly. While the Board 
understands that this requirement may significantly increase the burden 
on issuers, the Board believes that the corresponding benefit of 
increased transparency for consumers outweighs this burden.
58(d) Posting of Agreements Offered to the Public
    New TILA Section 122(d) requires that, in addition to submitting 
credit card agreements to the Board for posting on the Board's Web 
site, each card issuer must post the credit card agreements to which it 
is a party on its own Web site. The Board proposed to implement this 
requirement in proposed Sec.  226.58(f). Proposed Sec.  226.58(f)(1) 
required each issuer to post on its publicly available Web site the 
same agreements it submitted to the Board (i.e., the agreements the 
issuer offered to the public). The Board proposed additional guidance 
regarding the posting requirement in proposed Appendix N, paragraph 2.
    Commenters did not oppose the general requirements of proposed 
Sec.  226.58(f)(1), and the Board is adopting the proposed provision in 
final form, with certain modifications, as discussed below. In the 
final rule, proposed Sec.  226.58(f)(1) is redesignated Sec.  
226.58(d), and the content of Appendix N, paragraph 2, is incorporated 
into this section of the regulation, in order to ensure that the 
guidance provided is more readily noticeable and conveniently located 
for readers.
    Comment 58(d)-1 is added in the final rule to clarify that issuers 
are only

[[Page 7771]]

required to post and maintain on their publicly available Web site the 
credit card agreements that the issuer must submit to the Board under 
Sec.  226.58(c). If, for example, an issuer is not required to submit 
any agreements to the Board because the issuer qualifies for the de 
minimis exception under Sec.  226.58(c)(5), the issuer is not required 
to post and maintain any agreements on its Web site under Sec.  
226.58(d). Similarly, if an issuer is not required to submit a specific 
agreement to the Board, such as an agreement that qualifies for the 
private label exception under Sec.  226.58(c)(6), the issuer is not 
required to post and maintain that agreement under Sec.  226.58(d) 
(either on the issuer's publicly available Web site or on the publicly 
available Web sites of merchants at which private label credit cards 
can be used). The comment also emphasizes that the issuer in both of 
these cases is still required to provide each individual cardholder 
with access to his or her specific credit card agreement under Sec.  
226.58(e) by posting and maintaining the agreement on the issuer's Web 
site or by providing a copy of the agreement upon the cardholder's 
request.
    Comment 58(d)-2 is added to the final rule to clarify that, unlike 
Sec.  226.58(e), discussed below, Sec.  226.58(d) does not include a 
special rule for issuers that do not otherwise maintain a Web site. If 
an issuer is required to submit one or more agreements to the Board 
under Sec.  226.58(c), that issuer must post those agreements on a 
publicly available Web site it maintains (or, with respect to an 
agreement for a private label credit card, on the publicly available 
Web site of at least one of the merchants at which the card may be 
used, as provided in Sec.  226.58(d)(1)).
    Some card issuer commenters suggested that issuers should be 
permitted to post agreements for private label or co-branded cards on 
the Web site of a retailer that accepts the card, rather than the 
issuer's own Web site; the commenters noted that consumers are more 
likely to find such agreements if posted on the retailer's Web site. 
The Board agrees with these commenters, and accordingly Sec.  
226.58(d)(1) provides that an issuer may comply by posting and 
maintaining an agreement offered solely for accounts under one or more 
private label credit card plans in accordance with the requirements of 
Sec.  226.58(d) on the publicly available Web site of at least one of 
the merchants at which credit cards issued under each private label 
credit card plan with 10,000 or more open accounts may be used.
    Comment 58(d)-3 is included in the final rule to clarify how this 
provision would apply. The comment provides the following example: A 
card issuer has 100,000 open private label credit card accounts. Of 
these, 75,000 open accounts have credit cards usable only at Merchant A 
and 25,000 open accounts have credit cards usable only at Merchant B 
and Merchant B's affiliates, Merchants C and D. The card issuer offers 
to the public a single credit card agreement that is offered for both 
of these types of accounts and is not offered for any other type of 
account.
    The issuer is required to submit the agreement to the Board under 
Sec.  226.58(c)(1). Because the issuer is required to submit the 
agreement to the Board under Sec.  226.58(c)(1), the issuer is required 
to post and maintain the agreement on the issuer's publicly available 
Web site under Sec.  226.58(d). However, because the agreement is 
offered solely for accounts under one or more private label credit card 
plans, the issuer may comply with Sec.  226.58(d) in either of two 
ways. First, the issuer may comply by posting and maintaining the 
agreement on the issuer's own publicly available Web site. 
Alternatively, the issuer may comply by posting and maintaining the 
agreement on the publicly available Web site of Merchant A and the 
publicly available Web site of at least one of Merchants B, C and D. It 
would not be sufficient for the issuer to post the agreement on 
Merchant A's Web site alone because Sec.  226.58(d) requires the issuer 
to post the agreement on the publicly available Web site of ``at least 
one of the merchants at which cards issued under each private label 
credit card plan may be used'' (emphasis added).
    The comment also provides an additional, contrasting example, as 
follows: Assume that an issuer has 100,000 open private label credit 
card accounts. Of these, 5,000 open accounts have credit cards usable 
only at Merchant A and 95,000 open accounts have credit cards usable 
only at Merchant B and Merchant B's affiliates, Merchants C and D. The 
card issuer offers to the public a single credit card agreement that is 
offered for both of these types of accounts and is not offered for any 
other type of account.
    The issuer is required to submit the agreement to the Board under 
Sec.  226.58(c)(1). Because the issuer is required to submit the 
agreement to the Board under Sec.  226.58(c)(1), the issuer is required 
to post and maintain the agreement on the issuer's publicly available 
Web site under Sec.  226.58(d). However, because the agreement is 
offered solely for accounts under one or more private label credit card 
plans, the issuer may comply with Sec.  226.58(d) in either of two 
ways. First, the issuer may comply by posting and maintaining the 
agreement on the issuer's own publicly available Web site. 
Alternatively, the issuer may comply by posting and maintaining the 
agreement on the publicly available Web site of at least one of 
Merchants B, C and D. The issuer is not required to post and maintain 
the agreement on the publicly available Web site of Merchant A because 
the issuer's private label credit card plan consisting of accounts with 
cards usable only at Merchant A has fewer than 10,000 open accounts.
    Section 226.58(d)(2) incorporates provisions from proposed Appendix 
N, paragraph 2, stating that agreements posted pursuant to this section 
must conform to the form and content requirements for agreements 
submitted to the Board specified in Sec.  226.58(c)(8), except as 
provided in Sec.  226.58(d) (for example, as provided in Sec.  
226.58(d)(3), agreements posted on an issuer's Web site need not 
conform to the electronic format required for submission to the Board, 
as discussed below).
    Proposed Appendix N clarified that the agreements posted on an 
issuer's Web site need not conform to the electronic format required 
for submission to the Board. This clarification is incorporated into 
the final rule as Sec.  226.58(d)(3), which states that agreements 
posted pursuant to this section may be posted in any electronic format 
that is readily usable by the general public. For example, when posting 
the agreements on its own Web site, 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.
    Consumer group comments suggested that the rule should ensure that 
consumers are able to access credit card agreements offered to the 
public through an issuer's Web site without being required to provide 
personal information. The Board believes that the intent of the statute 
is to allow access to credit card agreements offered to the public 
without having to provide such information; accordingly, Sec.  
226.58(d)(3) also includes language setting forth this requirement, as 
well as a requirement that agreements posted on the issuer's Web site 
must be placed in a location that is prominent and readily accessible 
by the public, moved from proposed Appendix N, paragraph 2.
    Section 226.58(d)(4) incorporates provisions from proposed Appendix 
N, paragraph 2, stating that an issuer must update the agreements 
posted on its

[[Page 7772]]

Web site at least as frequently as the quarterly schedule required for 
submission of agreements to the Board. 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.
    Consumer group commenters suggested that the final rule clarify 
that any member of the public may have access to the agreement for any 
open account, whether or not currently offered to the public. The Board 
is not adopting such a requirement because, as discussed above, the 
Board believes the administrative burden associated with providing 
access to all open accounts would outweigh the benefit to consumers. A 
consumer group commenter asked that the rule require that, when a 
change is made to an agreement, the on-line version of that agreement 
be updated within a specific period of time no greater than 72 hours. 
The final rule does not include this requirement because the Board 
believes the burden to card issuers of updating agreements in such a 
short time would outweigh the benefit. In addition, if a consumer 
applies or is solicited for a credit card, the consumer will receive 
updated disclosures under Sec.  226.5a. Finally, the same commenter 
suggested that issuers should be required to archive previous versions 
of credit card agreements and allow on-line access to them for purposes 
of comparison. The Board believes the burden to card issuers of being 
required to archive and make available all previous versions of its 
credit card agreements would outweigh the benefit to consumers.
58(e) Agreements for All Open Accounts
    In addition to the requirements under proposed Sec.  226.58(f)(1), 
proposed Sec.  226.58(f)(2) required each issuer 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. Proposed Appendix N, paragraph 3, provided 
further guidance on these requirements. Proposed Sec.  226.58(f)(2), 
along with material from proposed Appendix N, paragraph 3, is 
incorporated into the final rule as Sec.  226.58(e), with certain 
modifications, as discussed below.
    As discussed above, the Board is exercising 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 final rule therefore does not exempt 
agreements that are not offered to the public from the requirements of 
Sec.  226.58(e).
    Similarly, the final rule provides that card issuers with fewer 
than 10,000 open credit card accounts are not required to submit 
agreements to the Board, and provides for other exceptions from the 
requirement to submit agreements. 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 whether the card issuer is 
required to submit the agreement to the Board for posting on the 
Board's Web site. The Board believes that this benefit of increased 
transparency for consumers outweighs the administrative burden on 
issuers of providing such access, and therefore Sec.  226.58(e) in the 
final rule does not include the exceptions from the requirement to 
submit agreements to the Board under Sec.  226.58(c).
    Comment 58(e)-1 clarifies that the requirement to provide access to 
credit card agreements under Sec.  226.58(e) applies to all open credit 
card accounts, regardless of whether such agreements are required to be 
submitted to the Board pursuant to Sec.  226.58(c) (or posted on the 
issuer's Web site pursuant to 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(c)(5) still 
is required to provide cardholders with access to their specific 
agreements under Sec.  226.58(e). Similarly, an agreement that is no 
longer offered to the public is not required to be submitted to the 
Board under Sec.  226.58(c), but nevertheless must be provided to the 
cardholder to whom it applies under Sec.  226.58(e). This comment 
corresponds to proposed comment 58(f)(2)-2.
    Section 226.58(e)(1)(ii) provides 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, does 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 Sec.  
226.58(e)(1)(ii) ensures that this will occur.
    Under proposed Sec.  226.58(f)(2)(ii), a card issuer that chose to 
make agreements available upon request was 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. Commenters suggested that an exception should be created for 
issuers that do not maintain toll-free telephone numbers; the 
commenters contended that maintaining a toll-free telephone number 
could be a substantial burden for small issuers, and noted that issuers 
that currently do not maintain toll-free telephone numbers likely have 
a primarily local customer base. The final rule, in Sec.  
226.58(e)(1)(ii), does not require that the telephone number for 
cardholders to call to request copies of their agreements be toll-free, 
but instead provides that the telephone line must be ``readily 
available.''
    Comment 58(e)-2 provides guidance on the ``readily available'' 
standard, stating that to satisfy the readily available standard, the 
card issuer must provide enough telephone lines so that cardholders get 
a reasonably prompt response, but that the issuer need only provide 
telephone service during normal business hours. The comment

[[Page 7773]]

further states that, within its primary service area, the issuer must 
provide a local or toll-free telephone number, but that the issuer need 
not provide a toll-free number or accept collect long-distance calls 
from outside the area where it normally conducts business. This 
standard is based on a comparable requirement under Regulation E, 12 
CFR Part 205, that requires financial institutions to provide a 
telephone line for consumers to call for certain purposes. See 
Regulation E, Sec.  205.10(a)(1)(iii), 12 CFR 205.10(a)(1)(iii), and 
comment 10(a)(1)-7 in the Regulation E Official Staff Commentary, 12 
CFR Part 205, Supplement I, paragraph 10(a)(1)-7.
    A number of commenters addressed the requirement to provide 
cardholders the ability to request a copy of their agreement by using 
the issuer's Web site (under proposed Sec.  226.58(f)(2)(ii)(A), 
redesignated Sec.  226.58(e)(1)(ii)(A) in the final rule), in addition 
to the ability to request a copy by calling a telephone number. The 
commenters noted that many card issuers do not have interactive Web 
sites, and that some may not have Web sites of any kind; they contended 
that permitting cardholders to request copies of their particular 
agreements through a Web site would require creating and maintaining an 
interactive Web site and complying with privacy and data security 
requirements, which could represent a significant compliance burden, 
especially for smaller issuers. The commenters suggested various 
alternative means for providing cardholders the means to request copies 
of their agreements.
    Based on information received from financial institution trade 
associations and service providers, it appears that a substantial 
number of card issuers do not maintain interactive Web sites, and that 
some issuers (for example, more than 250 credit unions) do not have Web 
sites of any kind. The Board believes that cardholders should be 
provided with convenient means to request copies of their credit card 
agreements, but that there are alternative methods that would serve 
this purpose and would not require issuers that do not have interactive 
Web sites to incur the expense to create and maintain such Web sites; 
the Board believes that the burden of creating and maintaining such Web 
sites would not be outweighed by the convenience to cardholders of 
being able to request a copy of their agreements directly through a Web 
site, as opposed to using an alternative means.
    Accordingly, in the final rule, Sec.  226.58(e)(2) sets forth a 
special rule for card issuers that do not have a Web site or that have 
a Web site that is not interactive (i.e., a Web site from which a 
cardholder cannot access specific information about his or her 
individual account). Section 226.58(e)(2) provides that, instead of 
complying with Sec.  226.58(e)(1), such an issuer may make agreements 
available upon request by providing the cardholder with the ability to 
request a copy of the agreement by calling a readily available 
telephone line, the number for which is: (i) Displayed on the issuer's 
Web site and clearly identified as to purpose; or (ii) included on each 
periodic statement sent to the cardholder and clearly identified as to 
purpose.
    The final rule includes comment 58(e)-3, which further clarifies 
how this special rule applies. Comment 58(e)-3 clarifies that an issuer 
that does not maintain a Web site from which cardholders can access 
specific information about their individual accounts is not required to 
provide a cardholder with the ability to request a copy of the 
agreement by using the issuer's Web site. The comment further clarifies 
that an issuer without a Web site of any kind could comply by 
disclosing the telephone number on each periodic statement; an issuer 
with a non-interactive Web site could comply in the same way, or 
alternatively could comply by displaying the telephone number on the 
issuer's Web site.
    Under proposed Sec.  226.58(f)(2)(ii), if a cardholder requested a 
copy of his or her credit card agreement (either using the issuer's Web 
site or by calling the telephone number provided), the issuer was 
required to send, or otherwise make available to, the cardholder a copy 
of the agreement within 10 business days after receiving the request. 
The Board solicited comments on whether issuers should have a shorter 
or longer period in which to respond to cardholder requests. Some 
commenters contended that 10 business days would not provide sufficient 
time to respond to a request; the commenters noted that they will be 
required to integrate changes in terms into the agreement and provide 
pricing information, which, particularly for older agreements that may 
have had many changes in terms over the years, could require more time. 
The commenters suggested various longer time periods to respond to a 
cardholder request, including 30 business days or 60 calendar days.
    The Board believes that it would be reasonable to provide more time 
for an issuer to respond to a cardholder request for a copy of the 
credit card agreement. Although cardholders should be able to obtain a 
copy of their agreement promptly, integrating changes in terms may 
require more time for older agreements; for newer agreements with fewer 
changes since the account was opened, the cardholder is more likely to 
still have a copy of the agreement and therefore less likely to need to 
request a copy. For all agreements, the pricing information has been 
disclosed to cardholders at the time the account is opened, and much of 
the pricing information is disclosed again on periodic statements. 
Accordingly, the final rule, in Sec. Sec.  226.58(e)(1)(ii) and (e)(2), 
provides that the issuer must send or otherwise make available to the 
cardholder the agreement in electronic or paper form within 30 calendar 
days after receiving the cardholder's request.
    Proposed comment 58(f)(2)-3 provided guidance on the deadline for 
providing agreements upon request. In the final rule, the comment is 
redesignated comment 58(e)-4. The comment states that if 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 30 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 30 days after receipt of the cardholder's request. The 
comment further notes that, under Sec.  226.58(e)(3)(v), issuers are 
permitted to provide copies of agreements in either paper or electronic 
form, regardless of the form of the cardholder's request, as discussed 
below.
    Section 226.58(e)(3) states requirements for the form and content 
of agreements, and is drawn largely from proposed Appendix N, paragraph 
3, and proposed staff commentary. Section 226.58(e)(3)(i) corresponds 
to part of paragraph 3(b) of proposed Appendix N, and states that 
except as elsewhere provided, agreements posted on the card issuer's 
Web site pursuant to Sec.  226.58(e)(1)(i) or made available upon the 
cardholder's request pursuant to Sec.  226.58(e)(1)(ii) or (e)(2) must 
conform to the form and content requirements for agreements submitted 
to the Board specified in Sec.  226.58(c)(8).
    Section 226.58(e)(3)(ii) corresponds to proposed Appendix N, 
paragraph 3(a), and states that if a card issuer posts an agreement on 
its Web site or otherwise provides an agreement to a cardholder 
electronically pursuant to Sec.  226.58(e), the agreement may be posted 
in any electronic format that is readily usable

[[Page 7774]]

by the general public and must be placed in a location that is 
prominent and readily accessible to the cardholder.
    Section 226.58(e)(1)(iii) is drawn from part of paragraph 3(b) of 
proposed Appendix N and provides that agreements posted or otherwise 
provided pursuant to Sec.  226.58(e) 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.
    Section 226.58(e)(1)(iv) corresponds generally to proposed Appendix 
N, paragraph (c), and states that agreements must set forth the 
specific provisions and pricing information applicable to the 
particular cardholder, and that agreement provisions and pricing 
information must be 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 or the cardholder's request is received.
    Finally, Sec.  226.58(e)(1)(v) is drawn from proposed comment 
58(f)(2)-1, and provides that agreements provided upon request may be 
provided by the issuer in either electronic or paper form, regardless 
of the form of the cardholder's request.
    Paragraph 3(d) of proposed Appendix N clarified that issuers may 
not provide provisions of the agreement or pricing information in the 
form of change-in-terms notices or riders. This language is not 
incorporated into the text of the final rule as part of Sec.  
226.58(e), but the requirement nevertheless applies because Sec.  
226.58(e) provides that agreements posted on the card issuer's Web site 
or made available upon the cardholder's request must conform to the 
form and content requirements for agreements submitted to the Board 
specified in Sec.  226.58(c)(8), and Sec.  226.58(c)(8) imposes this 
requirement. Thus, changes in provisions or pricing information must be 
integrated into the text of the agreement (or into the pricing 
information described in Sec.  226.58(c)(8)(ii)). For example, it is 
not permissible for an issuer to send to a cardholder under Sec.  
226.58(e)(1)(ii) an agreement consisting of a terms and conditions 
document dated January 1, 2005, and four subsequent change-in-terms 
notices. Instead, the issuer is 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 or 
the pricing information addendum.
    The Board believes that it is important for consumers be able to 
accurately assess the terms of a credit card agreement to which they 
are a party. As described above in connection with the integrated 
agreement requirement for agreements submitted to the Board, the Board 
believes that requiring consumers to sift through change-in-terms 
notices and riders in an attempt to assemble the current version of a 
credit card agreement imposes a significant burden on consumers, is 
likely to lead to consumer confusion, and would greatly lessen the 
usefulness of making credit card agreements available under the final 
rule. The Board believes that these arguments apply with even more 
force in the context of providing an individual cardholder with access 
to his or her specific credit card agreement. Permitting issuers to 
provide provisions of the agreement or pricing information as change-
in-terms notices or riders would require consumers to bear the burden 
of assembling a coherent picture of the terms to which they are 
currently subject. The Board believes that this likely would hinder the 
ability of many consumers to understand the terms applicable to them. 
The Board also believes that consumers in many instances would draw 
incorrect conclusions about which terms have been changed or 
superseded, causing these consumers to be misled regarding the terms of 
their credit card agreement. The Board believes that issuers are better 
placed than consumers to assemble this information correctly. While the 
Board understands that this may significantly increase the burden on 
issuers, the Board believes that the corresponding benefit of increased 
transparency for consumers outweighs this burden.
    Some commenters suggested that the final rule provide an exception 
from the requirements of Sec.  226.58(e) for accounts purchased from 
another issuer. Similarly, commenters suggested an exception for older 
accounts. Commenters argued that in such cases, issuers may not have 
the agreements and therefore may find it difficult or impossible to 
comply. The final rule does not contain the suggested exceptions. The 
Board believes that cardholders need to be able to obtain the credit 
card agreements to which they are parties.
    Finally, some commenters suggested that the final rule provide a 
grace period during which issuers would not be required to provide an 
integrated agreement upon request, but could instead send the 
cardholder the initial agreement and all subsequent change in terms 
notices. Alternatively, it was suggested that such a grace period be 
provided for accounts opened prior to a specific date. The final rule 
does not provide such a grace period. As discussed above, it likely 
would be difficult in many cases for cardholders to understand a 
complex credit card agreement supplemented by change in terms notices. 
In addition, as discussed above, the final rule allows 30 days (as 
opposed to 10 business days, as proposed) for issuers to respond to 
cardholder requests, in part in order to provide issuers sufficient 
time to integrate change in terms notices with the initial agreement 
before sending it to the cardholder.
58(f) E-Sign Act Requirements
    Section Sec.  226.58(f), corresponding to proposed Sec.  
226.58(f)(3), provides that card issuers may provide credit card 
agreements in electronic form under Sec.  226.58(d) and (e) 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.). 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 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,

[[Page 7775]]

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 
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 
Sec.  226.7(b)(12), the final rule limits 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). As proposed, Appendix M1 to part 226 provides 
guidance for calculating the repayment disclosures.
    Calculating the minimum payment repayment estimate. As proposed in 
the October 2009 Regulation Z Proposal, the minimum payment repayment 
estimate would have been 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 final rule adopts 
guidance in Appendix M1 to part 226 for calculating the minimum payment 
repayment estimate as proposed with several modifications as discussed 
below. The guidance in Appendix M1 to part 226 for calculating the 
minimum payment repayment estimate is 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. Under Appendix 
M1 to part 226, credit card issuers generally must 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, issuers are 
allowed to make certain assumption about these terms.
    1. Minimum payment formulas. When calculating the minimum payment 
repayment estimate, in the October 2009 Regulation Z Proposal, the 
Board proposed that credit card issuers generally must use the minimum 
payment formula(s) that apply to a cardholder's account. The final rule 
retains this provision as 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 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 provision of the final rule differs from the 
approach adopted in the January 2009 Regulation Z Rule, which gave card 
issuers the option of disclosing 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 other 
important information that is contained on the periodic statement.
    Under proposed Appendix M1 to part 226, card issuers would have 
been allowed to disregard promotional terms related to payments, such 
as deferred billing promotional plans and skip payment features. In 
response to the October 2009 Regulation Z Proposal, several industry 
commenters requested clarification on how to handle promotional 
programs that involve a reduction in the requirement minimum payment 
for a limited time period, such as may occur with fixed payment 
programs. These commenters suggested that the Board provide a card 
issuer with flexibility to choose whether the repayment disclosures are 
based only on the promotional minimum payment or on the minimum 
payments as they will be calculated over the duration of the account.
    The final rule retains the provision in Appendix M1 to part 226 
that 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. In Appendix M1 to part 226, 
the term ``promotional terms'' is defined as terms of a cardholder's 
account that will expire in a fixed period of time, as set forth by the 
card issuer. Appendix M1 to part 226 clarifies that issuers have two 
alternatives for handling promotional minimum payments. Under the first 
alternative, an issuer may disregard the promotional minimum payment 
during the promotional period, and instead calculated the minimum 
payment repayment estimate using the standard minimum payment formula 
that is applicable to the account. For example, assume that a 
promotional

[[Page 7776]]

minimum payment of $10 applies to an account for six months, and then 
after the promotional period expires, the minimum payment is calculated 
as 2 percent of the outstanding balance on the account or $20 whichever 
is greater. An issuer may assume during the promotional period that the 
$10 promotional minimum payment does not apply, and instead calculate 
the minimum payment disclosures based on the minimum payment formula of 
2 percent of the outstanding balance or $20, whichever is greater. 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.
    Under the second alternative, an issuer in calculating the minimum 
payment repayment estimate during the promotional period may choose not 
to disregard the promotional minimum payment but instead may calculate 
the minimum payments as they will be calculated over the duration of 
the account. In the above example, an issuer could calculate the 
minimum payment repayment estimate during the promotional period by 
assuming the $10 promotional minimum payment will apply for the first 
six months and then assuming the 2 percent or $20 (whichever is 
greater) minimum payment formula will apply until the balance is 
repaid. Appendix M1 to part 226 clarifies, however, that in calculating 
the minimum payment repayment estimate during a promotional period, an 
issuer may not assume that the promotional minimum payment will apply 
until the outstanding balance is paid off by making only minimum 
payments (assuming the repayment estimate is longer than the 
promotional period.) In the above example, the issuer may not calculate 
the minimum payment repayment estimate during the promotional period by 
assuming that the $10 promotional minimum payment will apply beyond the 
six months until the outstanding balance is repaid. The Board believes 
that allowing the card issuer to assume during the promotional period 
that the promotional minimum payment will apply indefinitely would 
distort the repayment disclosures provided to consumers.
    2. Annual percentage rates. Generally, when calculating the minimum 
payment repayment estimate, the October 2009 Regulation Z Proposal 
would have required 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 have been 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 have meant 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 during the promotional period would have been 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 have been required to calculate that rate based on 
the applicable index or formula. This variable rate would have been 
considered accurate if it was in effect within the last 30 days before 
the minimum payment repayment estimate is provided. The final rule 
retains these provisions as proposed.
    For deferred interest or similar plans, under the October 2009 
Regulation Z Proposal, 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 would have been required to 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 would have been required to 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. The final rule retains these provisions as 
proposed. This 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.
    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.
    3. Outstanding balance. When calculating the minimum payment 
repayment estimate, the Board proposed that credit card issuers must 
use the outstanding balance on a consumer's account as of the closing 
date of the last billing cycle. The final rule retains this provision 
as proposed. Issuers would not be required to take into account any

[[Page 7777]]

transactions consumers may have made since the last billing cycle. The 
Board believes that this 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. 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 proposed in Appendix 
M1 to part 226 that issuers must 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 
proposed to allow issuers to make certain assumptions about these 
terms. The final rule retains this approach.
    a. Balance computation method. The Board proposed 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 proposed 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 
proposed to allow issuers to assume that payments are credited on the 
last day of the month. The final rule retains these provisions with one 
modification. Based on comments received in response to the October 
2009 Regulation Z Proposal, Appendix M1 to part 226 is revised to allow 
card issuers to assume either that payments are credited on the last 
day of the month or the last day of the billing cycle.
    b. Grace period. In proposed Appendix M1 to part 226, the Board 
proposed to allow issuers to assume that no grace period exists. The 
final rule retains this provision as proposed. 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 assumption about the grace period is also consistent with the 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 proposed 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. The final rule retains 
these provisions as proposed. 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 have been 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 final rule retains this provision as proposed. 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 during the 
promotional period 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 proposed 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. The final rule retains this provision as proposed. 
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 proposed to allow issuers to assume that payments are allocated 
to lower APR balances before higher APR balances

[[Page 7778]]

when multiple APRs apply to an account. The final rule retains this 
provision as proposed. As discussed in the section-by-section analysis 
to Sec.  226.53, the rule permits issuers to allocate minimum payment 
amounts as they choose; however, issuers are 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 have allowed issuers to assume 
that the consumer's account is not past due and the account balance is 
not over the credit limit. The final rule retains this provision as 
proposed. 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. In response to the October 2009 
Regulation Z Proposal, one commenter asked for confirmation that if the 
account terms operate such that the past due amount will be added to 
the minimum payment due in the next billing cycle, the card issuer may 
assume that the consumer will pay that higher minimum payment amount in 
the next billing cycle in calculating the minimum payment repayment 
estimate. The Board notes that while issuers are allowed to assume that 
an account is not past due, the issuer is not required to assume that 
fact. The Board notes that under Appendix M1 to part 226, when 
calculating the minimum payment repayment estimate, a credit card 
issuer may make certain assumptions about account terms (as set forth 
in paragraph (b)(4) of Appendix M1 to part 226) or may use the account 
term that applies to a consumer's account.
    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 
have been 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. The final rule retains this provision 
as proposed.
    5. Tolerances. The Board proposed 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. The final rule 
retains this provision with one technical revision as discussed below. 
This 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 rounding rule set forth in 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 
rounding rule. Thus, in the example above, an issuer would be in 
compliance with the guidance in 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 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 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 Sec.  226.7(b)(12)(i)(B), the issuer would be in 
compliance with the guidance in Appendix M1 to part 226. For example, 
assume the minimum payment repayment estimate calculated using the 
guidance in 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 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 the 
guidance in Appendix M1 to part 226 even through the minimum payment 
repayment estimate calculated by the issuer is outside the 2 months' 
tolerance amount.
    In response to comments received on the October 2009 Regulation Z 
Proposal, Appendix M1 to part 226 is revised to clarify that the 2-
month tolerance described above will apply even if the card issuer uses 
the consumer's account terms in calculating the minimum payment 
repayment estimate (instead of the listed assumptions set forth in 
paragraph (b)(4) of Appendix M1 to part 226).
    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 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 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 have been 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 have been 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. The final rule adopts these provisions as proposed. 
For example, assume the minimum payment repayment estimate calculated 
using the guidance in 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 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 
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

[[Page 7779]]

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 have been 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 proposed 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. In response to the October 2009 Regulation Z 
Proposal, several industry commenters requested that the Board allow 
issuers to utilize other methods of calculating the estimated monthly 
payment for repayment in 36 months (other than a weighted average). 
These commenters indicate that use of the weighted average does not 
seem to provide the most accurate calculation in all circumstances and 
other methods of calculating the estimated monthly payment for 
repayment in 36 months, which do not use the weighted average, provide 
less variance and are arguably more accurate.
    Based on these comments, Appendix M1 to part 226 is revised to 
permit card issuers to use methods of calculating the estimated monthly 
payment for repayment in 36 months other than a weighted average, so 
long as the calculation results in the same payment amount each month 
and so long as the total of the payments would pay off the outstanding 
balance shown on the periodic statement within 36 months. The Board 
believes this approach will provide card issuers with the flexibility 
to use calculation methods other than a weighed APR that provide more 
accurate estimates of the monthly payment for repayment in 36 months.
    Nonetheless, Appendix M1 to part 226 would still permit, but not 
require, card issuers to use a weighted APR to calculate the estimated 
monthly payment for repayment in 36 months. The Board believes that 
permitting card issuers to use a weighted APR to calculate the 
estimated monthly payment for repayment in 36 months 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.
    Appendix M1 to part 226 provides 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 Appendix M2 
to part 226.
    Under 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 in calculating the weighted APR 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 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 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 (unless the card issuer is complying with a consumer request), 
and (2) deferred interest or similar periods typically are shorter than 
3 years.
    In the October 2009 Regulation Z Proposal, the Board requested 
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. In 
response to the October 2009 Regulation Z Proposal, one industry 
commenter suggested the Board adopt a tolerance of 10 percent, such 
that the estimated monthly payment for repayment in 36 months that is 
disclosed to the consumer would be considered accurate if it is not 
more than 10 percent above or below the estimated monthly payment for 
repayment in 36 months determined in accordance with the guidance in 
Appendix M1 to part 226. Another industry commenter suggested 5 percent 
as the tolerance amount. The final rule adopts 10 percent as the 
tolerance amount for accuracy of the estimated monthly payment for 
repayment in 36 months, to account for complexity in calculating that 
disclosure.
    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 have 
been 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 final rule retains this 
provision as proposed.
    In the October 2009 Regulation Z Proposal, the Board requested 
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. In response to 
the October 2009 Regulation Z Proposal, one industry commenter 
suggested that the Board amend Appendix M1 to part 226 to provide that 
the total cost estimate for repayment in 36 months is deemed accurate 
if it is based on the estimated monthly payment for repayment in 36 
months that is calculated in accordance with paragraph (d) of Appendix 
M1 to part 226. The Board recognizes that the total cost estimate for 
repayment in 36

[[Page 7780]]

months is an estimate. Accordingly, the Board revises Appendix M1 to 
part 226 to incorporate the above accuracy standard for the total cost 
estimate for repayment in 36 months.
    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 final rule retains this provision as proposed.
    In the October 2009 Regulation Z Proposal, the Board requested 
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. In response to the 
October 2009 Regulation Z Proposal, one industry commenter suggested 
that the Board amend Appendix M1 to part 226 to provide that the 
savings estimate for repayment in 36 months is deemed to be accurate if 
it is based on the total cost estimate for repayment in 36 months that 
is calculated in accordance with paragraph (e) of Appendix M1 to part 
226 and the minimum payment total cost estimate calculated under 
paragraph (c) of Appendix M1 to part 226. The Board recognizes that the 
savings estimate for repayment in 36 months is an estimate. 
Accordingly, the Board revises Appendix M1 to part 226 to incorporate 
the above accuracy standard for the saving estimate.
Appendix M2--Sample Calculations of Repayment Disclosures
    In proposed Appendix M2, the Board proposed 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. The final rule retains Appendix M2 to part 226 
as proposed.
Additional Issues Raised by Commenters
Circumvention or Evasion
    Consumer groups and a member of Congress requested that the Board 
adopt a provision specifically prohibiting creditors from circumventing 
or evading Regulation Z. However, this request seems to suggest that 
circumvention or evasion of Regulation Z is permitted unless 
specifically prohibited by the Board when, in fact, the opposite is 
true. Nothing in TILA or Regulation Z permits a creditor to circumvent 
or evade their provisions. Thus, although the Board agrees that 
circumvention or evasion of Regulation Z is prohibited, the Board does 
not believe that it is necessary or appropriate to adopt a provision 
specifically prohibiting circumvention or evasion. Furthermore, because 
the requested provision would be broad and general, the Board is 
concerned that it would produce uncertainty for creditors regarding 
compliance with Regulation Z and for the agencies that supervise 
compliance with Regulation Z without producing compensating benefits 
for consumers.
    Accordingly, it appears that the better approach is for the Board 
to continue using its authority under TILA Section 105(a) to prevent 
circumvention or evasion by prohibiting specific practices that--
although arguably not expressly prohibited by TILA--are nevertheless 
clearly inconsistent with its provisions. For example, in this 
rulemaking, the Board has:
     Provided that the restrictions in revised TILA Section 171 
and new TILA Section 172 on increasing annual percentage rates and 
certain fees continue to apply after an account is closed or acquired 
by another creditor or after the balance is transferred to another 
credit account issued by the same creditor or its affiliate or 
subsidiary. See Sec.  226.55(d).
     Provided that a card issuer that uses fixed ``floors'' to 
exercise control over the operation of an index cannot utilize the 
exception for variable rates in revised TILA Section 171(b)(2). See 
comment 55(b)(2)-2.
     Provided that the restrictions in new TILA Section 127(n) 
apply not only to fees charged to a credit card account but also to 
fees that the consumer is required to pay with respect to that account 
through other means (such as through a payment from the consumer to the 
card issuer or from another credit account provided by the card 
issuer). See comment 52(a)(1)-1.
    The Board will continue to monitor industry practices and take 
action when appropriate. In addition, Section 502 of the Credit Card 
Act requires that--at least every two years--the Board conduct a review 
of, among other things, the terms of credit card agreements, the 
practices of card issuers, the effectiveness of credit card 
disclosures, and the adequacy of protections against unfair or 
deceptive acts or practices relating to credit cards.
Waiver or Forfeiture of Protections
    Consumer groups also requested that--in order to prevent creditors 
from misleading consumers into consenting to practices prohibited by 
Regulation Z--the Board adopt a provision affirmatively stating that 
the protections in Regulation Z cannot be waived or forfeited. However, 
as above, this request incorrectly assumes that creditors are generally 
permitted to engage in practices prohibited by Regulation Z in these 
circumstances. There is no such general exception to the provisions in 
Regulation Z. Instead, the Board has expressly and narrowly defined the 
circumstances in which a consumer's consent or request alters the 
requirements in Regulation Z.\74\ For this reason, the Board does not 
believe that the requested provision is necessary.
---------------------------------------------------------------------------

    \74\ See, e.g., comment 53(b)-5 (clarifying that preprinted 
language in an account agreement or on a payment coupon does not 
constitute a consumer request for purposes of allocating a payment 
in excess of the minimum pursuant to Sec.  226.53(b)(2)); revised 
Sec.  226.9(c)(2)(i) (clarifying that the statement in Sec.  
226.9(c)(2)(i) that the 45-day timing requirement does not apply if 
the consumer has agreed to a particular change is solely intended 
for use in the unusual instance when a consumer substitutes 
collateral or when the creditor can advance additional credit only 
if a change relatively unique to that consumer is made).
---------------------------------------------------------------------------

VI. Mandatory Compliance Dates

    A. Mandatory compliance dates--in general. The mandatory compliance 
date for the portion of Sec.  226.5(a)(2)(iii) regarding use of the 
term ``fixed'' and for Sec. Sec.  226.5(b)(2)(ii), 226.7(b)(11), 
226.7(b)(12), 226.7(b)(13), 226.9(c)(2) (except for 
226.9(c)(2)(iv)(D)), 226.9(e), 226.9(g) (except for 226.9(g)(3)(ii)), 
226.9(h), 226.10, 226.11(c), 226.16(f), and Sec. Sec.  226.51-226.58 is 
February 22, 2010. The mandatory compliance date for all other 
provisions of this final rule is July 1, 2010. For those provisions 
that are effective July 1, 2010, except to the extent that early 
compliance with this final rule is permitted, creditors generally must 
comply with the existing requirements of Regulation Z until July 1, 
2010.
    B. Prospective application of new rules. The final rule is 
prospective in application. The following paragraphs set forth 
additional guidance and examples as to how a creditor must

[[Page 7781]]

comply with the final rule by the relevant mandatory compliance date.
    C. Tabular summaries that accompany applications or solicitations 
(Sec.  226.5a). Credit and charge card applications provided or made 
available to consumers on or after July 1, 2010 must comply with the 
final rule, including format and terminology requirements. For example, 
if a direct-mail application or solicitation is mailed to a consumer on 
June 30, 2010, it is not required to comply with the new requirements, 
even if the consumer does not receive it until July 7, 2010. If a 
direct-mail application or solicitation is mailed to consumers on or 
after July 1, 2010, however, it must comply with the final rule. If a 
card issuer makes an application or solicitation available to the 
general public, such as ``take-one'' applications, any new applications 
or solicitations issued by the creditor on or after July 1, 2010 must 
comply with the new rule. However, if a card issuer issues an 
application or solicitation by making it available to the public prior 
to July 1, 2010, for example by restocking an in-store display of 
``take-one'' applications on June 15, 2010, those applications need not 
comply with the new rule, even if a consumer may pick up one of the 
applications from the display after July 1, 2010. Any ``take-one'' 
applications that the card issuer uses to restock the display on or 
after July 1, 2010, however, must comply with the final rule.
    D. Account-opening disclosures (Sec.  226.6). Account-opening 
disclosures furnished on or after July 1, 2010 must comply with the 
final rule, including format and terminology requirements. The relevant 
date for purposes of this requirement is the date on which the 
disclosures are furnished, not when the consumer applies for the 
account. For example, if a consumer applies for an account on June 30, 
2010, but the account-opening disclosures are not mailed until July 2, 
2010, those disclosures must comply with the final rule. In addition, 
if the disclosures are furnished by mail, the relevant date is the day 
on which the disclosures were sent, not the date on which the consumer 
receives the disclosures. Thus, if a creditor mails the account-opening 
disclosures on June 30, 2010, even if the consumer receives those 
disclosures on July 7, 2010, the disclosures are not required to comply 
with the final rule.
    E. Periodic statements (Sec.  Sec.  226.7 and 226.5(b)(2)).
    Timing requirements (Sec.  226.5(b)(2)). As discussed in the July 
2009 Regulation Z Interim Final Rule, revised TILA Section 163 (as 
amended by the Credit Card Act) became effective on August 20, 2009. 
Accordingly, the interim final rule's revisions to Sec.  
226.5(b)(2)(ii) also became effective on August 22, 2009. In the 
interim final rule, the Board recognized that, with respect to open-end 
consumer credit plans other than credit cards, it could be difficult 
for some creditors to update their systems to produce periodic 
statements by August 20, 2009 that disclosed payment due dates and 
grace period expiration dates (if applicable) that were consistent with 
the 21-day requirement in revised Sec.  226.5(b)(2)(ii). As a result, 
the Board noted the possibility that, for a short period of time after 
August 20, some periodic statements for open-end consumer credit plans 
other than credit cards might disclose payment due dates and grace 
period expiration dates (if applicable) that were technically 
inconsistent with the interim final rule. In these circumstances, the 
Board stated that the creditor could remedy this technical issue by 
prominently disclosing elsewhere on or with the periodic statement that 
the consumer's payment will not be treated as late for any purpose if 
received within 21 days after the statement was mailed or delivered.
    However, on November 6, 2009, the Technical Corrections Act amended 
Section 163(a) to remove the requirement that creditors provide 
periodic statements at least 21 days before the payment due date with 
respect to open-end consumer credit plans other than credit card 
accounts. Thus, effective November 6, 2009, creditors were no longer 
required to comply with Sec.  226.5(b)(2)(ii) to the extent 
inconsistent with TILA Section 163(a), as amended by the Technical 
Corrections Act.
    As noted above, the final rule's revisions to Sec.  226.5(b)(2)(ii) 
and its commentary are intended to implement the Technical Corrections 
Act and to clarify certain aspects of the interim final rule. These 
revisions are not intended to impose any new substantive requirements 
on creditors. Nevertheless, to the extent that these revisions require 
creditors to make any changes to their systems or processes for 
providing periodic statements, the relevant date for purposes of 
determining when a creditor must comply with the final rule is the date 
on which the periodic statement is mailed or delivered, not the due 
date or grace period expiration date reflected on the statement. Thus, 
if a periodic statement is mailed or delivered on February 22, the 
creditor must have reasonable procedures designed to ensure that the 
payment due date and the grace period expiration date are not earlier 
than March 15, consistent with the revisions to Sec.  226.5(b)(2)(ii) 
in this final rule. However, if a periodic statement is mailed or 
delivered on February 21, the revisions to Sec.  226.5(b)(2)(ii) in 
this final rule do not apply to that statement.
    Content requirements (Sec.  226.7). Periodic statements mailed or 
delivered on or after February 22, 2010 must comply with Sec.  
226.7(b)(11), (b)(12), and (b)(13) of the final rule. The requirement 
in Sec.  226.7(b)(11)(i)(A) that the due date for a credit card account 
under an open-end (not home-secured) consumer credit plan be the same 
day each month applies beginning with the first statement for an 
account that is mailed or delivered on or after February 22, 2010. The 
due date disclosed on the last statement for an account mailed or 
delivered prior to February 22, 2010 need not be the same day of the 
month as the due date disclosed on the first statement for that account 
that is mailed or delivered on or after February 22, 2010.
    For all other requirements of Sec.  226.7(b), periodic statements 
mailed or delivered on or after July 1, 2010 must comply with the final 
rule. For example, if a creditor mails a periodic statement to the 
consumer on June 30, 2010, that statement is not required to comply 
with the final rule, even if the consumer does not receive the 
statement until July 7, 2010.
    For periodic statements mailed on or after July 1, 2010, fees and 
interest charges must be disclosed for the statement period and year-
to-date. For the year-to-date figure, creditors comply with the final 
rule by aggregating fees and interest charges beginning with the first 
periodic statement mailed on or after July 1, 2010. The first statement 
mailed on or after July 1, 2010 need not disclose aggregated fees and 
interest charges from prior cycles in the year. At the creditor's 
option, however, the year-to-date figure may reflect amounts computed 
in accordance with comment 7(b)(6)-3 for prior cycles in the year.
    The Board recognizes that a creditor may wish to comply with 
certain provisions of the final rule for periodic statements that are 
mailed prior to July 1, 2010. A creditor may phase in disclosures 
required on the periodic statement under the final rule that are not 
currently required prior to July 1, 2010. A creditor also may generally 
omit from the periodic statement any disclosures that are not required 
under the final rule prior to July 1, 2010. However, a creditor must 
continue to disclose an effective APR unless and until that creditor 
provides disclosures

[[Page 7782]]

of fees and interest that comply with Sec.  226.7(b)(6) of the final 
rule. Similarly, as provided in Sec.  226.7(a), in connection with a 
HELOC, a creditor must continue to disclose an effective APR unless and 
until that creditor provides fee and interest disclosures under Sec.  
226.7(b)(6).
    F. Checks that access a credit card account (Sec.  226.9(b)). A 
creditor must comply with the disclosure requirements of Sec.  
226.9(b)(3) of the final rule for checks that access a credit account 
that are provided on or after July 1, 2010. Thus, for example, if a 
creditor mails access checks to a consumer on June 30, 2010, these 
checks are not required to comply with new Sec.  226.9(b)(3), even if 
the consumer receives them on July 7, 2010.
    G. Notices of changes in terms and penalty rate increases for 
credit card accounts under an open-end (not home-secured) consumer 
credit plan (Sec.  226.9(c)(2) and (g)).
    In general. With the exception of the formatting requirements in 
Sec.  226.9(c)(2)(iv)(D) and (g)(3)(ii), compliance with Sec.  
226.9(c)(2) and (g) is mandatory on the effective date of this final 
rule, February 22, 2010. Compliance with the formatting requirements 
set forth in Sec.  226.9(c)(2)(iv)(D) and (g)(3)(ii) is mandatory on 
July 1, 2010.
    Change in terms notices. The relevant date for determining whether 
a change-in-terms notice must comply with the new requirements of 
revised Sec.  226.9(c)(2) is generally the date on which the notice is 
provided, not the effective date of the change. Therefore, if a card 
issuer provides a notice of a change in terms for a credit card account 
under an open-end (not home-secured) consumer credit plan pursuant to 
Sec.  226.9(c)(2) of the July 2009 Regulation Z Interim Final Rule 
prior to February 22, 2010, the notice generally is required to comply 
with the requirements of Sec.  226.9(c)(2) of the Board's July 2009 
Regulation Z Interim Final Rule rather than the final rule.
    Accordingly, a card issuer may provide a notice in accordance with 
the July 2009 Regulation Z Interim Final Rule on February 20, 2010 
disclosing a change-in-terms effective April 6, 2009. This notice would 
not be required to comply with the revised requirements of this final 
rule. For example, if the change being disclosed is a rate increase due 
to the consumer's failure to make a required minimum payment within 60 
days of the due date, a notice provided prior to February 22, 2010 is 
not required to disclose the consumer's right to cure the rate increase 
by making the first six minimum payments on time following the 
effective date of the rate increase.
    This transition guidance is similar to the guidance the Board 
provided with the July 2009 Regulation Z Interim Final Rule. The Board 
believes that this is the appropriate way to implement the February 22, 
2010 effective date in order to ensure that institutions are provided 
the full implementation period provided under the Credit Card Act. In 
the alternative, the Credit Card Act could be construed to require 
creditors to provide notices, pursuant to new Sec.  226.9(c)(2), 45 
days in advance of changes occurring on or after February 22. However, 
this reading would create uncertainty regarding compliance with the 
rule by requiring creditors to begin providing change-in-terms notices 
in accordance with revised Sec.  226.9(c)(2) prior to the publication 
of this final rule. Accordingly, for clarity and consistency, the Board 
believes the better interpretation is that creditors must begin to 
comply with amended TILA Section 127(i) (as implemented in amended 
Sec.  226.9(c)(2)) for change-in-terms notices provided on or after 
February 22, 2010.
    Penalty rate increases. For rate increases due to the consumer's 
default or delinquency or as a penalty, the 45-day timing requirement 
of Sec.  226.9(g) of the July 2009 Regulation Z Interim Final Rule 
currently applies to credit card accounts under an open-end (not home-
secured) consumer credit plan.
    The Board is adopting an amended Sec.  226.9(g) in this final rule, 
which retains the 45-day notice requirement from the July 2009 
Regulation Z Interim Final Rule, with several changes. For example, for 
rate increases due to the consumer's failure to make a required minimum 
payment within 60 days of the due date, the final rule requires 
disclosure of the consumer's right to cure the rate increase by making 
the first six minimum payments on time following the effective date of 
the rate increase. Similar to, and for the reasons discussed in 
connection with, the transition guidance for Sec.  226.9(c)(2), the 
relevant date for determining whether a change-in-terms notice must 
comply with the new requirements of revised Sec.  226.9(g) is generally 
the date on which the notice is provided, not the effective date of the 
rate increase. Therefore, if a card issuer provides a notice of a rate 
increase due to delinquency, default, or as a penalty for a credit card 
account under an open-end (not home-secured) consumer credit plan 
pursuant to Sec.  226.9(g) of the July 2009 Regulation Z Interim Final 
Rule prior to February 22, 2010, the notice generally is required to 
comply with the requirements of Sec.  226.9(g) of the Board's July 2009 
Regulation Z Interim Final Rule rather than the final rule.
    Workout and temporary hardship arrangements. The Board's July 2009 
Regulation Z Interim Final Rule amended Sec.  226.9(c)(2) and (g) to 
provide that creditors are not required to provide 45 days advance 
notice when a rate is increased due to the completion or failure of a 
workout or temporary hardship arrangement, provided that, among other 
things, the creditor had provided the consumer prior to commencement of 
the arrangement with a clear and conspicuous written disclosure of the 
terms of the arrangement (including any increases due to completion or 
failure of the arrangement). This final rule further amends Sec.  
226.9(c)(2)(v)(D) to provide that, although this disclosure must 
generally be in writing, a creditor may disclose the terms of the 
arrangement orally by telephone, provided that the creditor mails or 
delivers a written disclosure of the terms to the consumer as soon as 
reasonably practicable after the oral disclosure is provided.
    The revision to Sec.  226.9(c)(2)(v)(D) recognizes that workout and 
temporary hardship arrangements are frequently established over the 
telephone and that creditors often apply the reduced rate immediately. 
Accordingly, to the extent that a creditor disclosed the terms of a 
workout or temporary hardship arrangement orally by telephone prior to 
February 22, 2010, the creditor may increase a rate to the extent 
consistent with Sec.  226.9(c)(2)(v)(D)(1) on or after February 22 so 
long as the creditor has mailed or delivered written disclosure of the 
terms to the consumer by February 22.
    Changes necessary to comply with final rule. The Board understands 
that, in order to comply with the final rule by February 22, 2010, card 
issuers may have to make changes to the account terms set forth in a 
consumer's credit agreement or similar legal documents. The Board also 
understands that, in some circumstances, the terms of the account may 
be inconsistent with the final rule on February 22, 2010 because those 
terms have not yet been amended consistent with the 45-day notice 
requirement in Sec.  226.9(c)(2). For example, if a card issuer 
provides a notice on January 30, 2010 informing the consumer of changes 
to the method used to calculate a variable rate necessary to comply 
with Sec.  226.55(b)(2), changes to the balance computation method 
necessary to comply with Sec.  226.54, Sec.  226.9(c)(2) technically 
prohibits the issuer from applying those changes to the account until 
March 16,

[[Page 7783]]

2010. In these circumstances, however, the card issuer must comply with 
the provisions of the final rule on February 22, 2010, even if the 
terms of the account have not yet been amended consistent with Sec.  
226.9(c)(2). Otherwise, card issuers could continue to, for example, 
calculate variable rates in a manner that is inconsistent with Sec.  
226.55(b)(2) after February 22, which would not be consistent with 
Congress' intent.
    Accordingly, if on February 22, 2010 the terms of an account are 
inconsistent with the final rule, the card issuer is prohibited from 
enforcing those terms, even if those terms have not yet been amended 
consistent with the 45-day notice requirement in Sec.  226.9(c)(2). 
Illustrative examples are provided below in the transition guidance for 
Sec.  226.55(b)(2).
    Right to reject. The Board's July 2009 Regulation Z Interim Final 
Rule adopted Sec.  226.9(h), which provides consumers with the right to 
reject certain significant changes in account terms. Under Sec.  
226.9(h), the right to reject applies when the card issuer is required 
to disclose that right in a Sec.  226.9 notice. Current Sec.  226.9(c) 
and (g) generally require disclosure of the right to reject when a rate 
is increased and when certain other significant account terms are 
changed. However, under the final rule, disclosure of the right to 
reject will no longer be required for rate increases because Sec.  
226.55 generally prohibits application of increased rates to existing 
balances. Thus, card issuers are not required to provide consumers with 
the right to reject a rate increase that is subject to Sec.  226.55, 
consistent with the transition guidance for Sec.  226.55 (discussed 
below).
    Furthermore, as discussed above with respect to Sec.  226.9(c)(2), 
the Board understands that card issuers will have to make significant 
changes in account terms in order to comply with the final rule by 
February 22, 2010. Because it would not be appropriate to permit 
consumers to reject changes that are mandated by the Credit Card Act 
and this final rule, card issuers are not required to provide consumers 
with the right to reject a change that is necessary to comply with the 
final rule. For example, card issuers are not required to provide a 
right to reject for changes to a balance computation method necessary 
to comply with Sec.  226.54 or changes to the method used to calculate 
a variable rate necessary to comply with Sec.  226.55(b)(2).
    H. Notices of changes in terms and penalty rate increases for other 
open-end (not home-secured) plans (Sec.  226.9(c)(2) and (g)).
    Change in terms notices--in general. Compliance with Sec.  
226.9(c)(2) of the final rule (except for the formatting requirements 
of Sec.  226.9(c)(2)(iv)(D)) is mandatory on February 22, 2010 for 
open-end (not home-secured) plans that are not credit card accounts 
under an open-end (not home-secured) consumer credit plan. Prior to 
February 22, 2010, such creditors may provide change-in-terms notices 
15 days in advance of a change, consistent with Sec.  226.9(c)(1) of 
the July 2009 Interim Final Rule. For example, such a creditor may mail 
a change-in-terms notice to a consumer on February 20, 2010 disclosing 
a change effective on March 7, 2010. In contrast, a notice of a rate 
increase sent on February 22, 2010 would be required to comply with 
Sec.  226.9(c)(2) of the final rule (except for the formatting 
requirements of Sec.  226.9(c)(2)(iv)(D)), and thus the change 
disclosed in the notice could have an effective date no earlier than 
April 8, 2010.
    Promotional rates.\75\ Some creditors that are not card issuers may 
have outstanding promotional rate programs that were in place before 
the effective date of this final rule, but under which the promotional 
rate will not expire until after February 22, 2010. For example, a 
creditor may have offered its consumers a 5% promotional rate on 
transactions beginning on September 1, 2009 that will be increased to 
15% effective as of September 1, 2010. Such creditors may have concerns 
about whether the disclosures that they have provided to consumers in 
accordance with these arrangements are sufficient to qualify for the 
exception in Sec.  226.9(c)(2)(v)(B). The Board notes that Sec.  
226.9(c)(2)(v)(B) of this final rule requires written disclosures of 
the term of the promotional rate and the rate that will apply when the 
promotional rate expires. The final rule further requires that the term 
of the promotional rate and the rate that will apply when the 
promotional rate expires be disclosed in close proximity and equally 
prominent to the disclosure of the promotional rate. The Board 
anticipates that many creditors offering such a promotional rate 
program may already have complied with these advance notice 
requirements in connection with offering the promotional program.
---------------------------------------------------------------------------

    \75\ For simplicity, the Board refers in this transition 
guidance to ``promotional rates.'' However, pursuant to new comment 
9(c)(2)(v)-9, this transition guidance is intended to apply equally 
to deferred interest or similar programs.
---------------------------------------------------------------------------

    The Board is nonetheless aware that some other creditors may be 
uncertain whether written disclosures provided at the time an existing 
promotional rate program was offered are sufficient to comply with the 
exception in Sec.  226.9(c)(2)(v)(B). For example, for promotional rate 
offers provided after February 22, 2010, the disclosure under Sec.  
226.9(c)(2)(v)(B)(1) must include the rate that will apply after the 
expiration of the promotional period. For an existing promotional rate 
program, a creditor might instead have disclosed this rate narratively, 
for example by stating that the rate that will apply after expiration 
of the promotional rate is the standard annual percentage rate 
applicable to purchases. The Board does not believe that it is 
appropriate to require a creditor that generally provided disclosures 
consistent with Sec.  226.9(c)(2)(v)(B), but that are technically not 
compliant because they described the post-promotional rate narratively, 
to provide consumers with 45 days' advance notice before expiration of 
the promotional period. This would have the impact of imposing the 
requirements of this final rule retroactively, to disclosures given 
prior to the February 22, 2010 effective date. Therefore, a creditor 
that generally made disclosures in connection with an open-end (not 
home-secured) plan that is not a credit card account under an open-end 
(not home-secured) consumer credit plan prior to February 22, 2010 
complying with Sec.  226.9(c)(2)(v)(B) but that describe the type of 
post-promotional rate rather than disclosing the actual rate is not 
required to provide an additional notice pursuant to Sec.  226.9(c)(2) 
before expiration of the promotional rate in order to use the 
exception.
    Similarly, the Board acknowledges that there may be some creditors 
with outstanding promotional rate programs that did not make, or, 
without conducting extensive research, are not aware if they made, 
written disclosures of the length of the promotional period and the 
post-promotional rate. For example, some creditors may have made these 
disclosures orally. For the same reasons described in the foregoing 
paragraph, the Board believes that it would be inappropriate to 
preclude use of the Sec.  226.9(c)(2)(v)(B) exception by creditors 
offering these promotional rate programs. That interpretation of the 
rule would in effect require creditors to have complied with the 
precise requirements of the exception before the February 22, 2010 
effective date. However, the Board believes at the same time that it 
would be inconsistent with the intent of the Credit Card Act for 
creditors that provided no advance notice of the term of the promotion 
and the post-promotional rate to receive an

[[Page 7784]]

exemption from the general notice requirements of Sec.  229.9(c)(2).
    Consequently, any creditor that is not a card issuer that provides 
a written disclosure to consumers subject to an existing promotional 
rate program, prior to February 22, 2010, stating the length of the 
promotional period and the rate or type of rate that will apply after 
that promotional rate expires is not required to provide an additional 
notice pursuant to Sec.  226.9(c)(2) prior to applying the post-
promotional rate. In addition, any creditor that is not a card issuer 
that provided, prior to February 22, 2010, oral disclosures of the 
length of the promotional period and the rate or type of rate that will 
apply after the promotional period also need not provide an additional 
notice under Sec.  226.9(c)(2). However, any creditor subject to Sec.  
226.9(c)(2) that is not a card issuer and has not provided advance 
notice of the term of a promotion and the rate that will apply upon 
expiration of that promotion in the manner described above prior to 
February 22, 2010 will be required to provide 45 days' advance notice 
containing the content set forth in this final rule before raising the 
rate.
    Penalty rate increases. For open-end (not home-secured) plans that 
are not credit card accounts under an open-end (not home-secured) 
consumer credit plan, Sec.  226.9(c)(1) of the July 2009 Regulation Z 
Interim Final Rule requires only that notice of an increase due to the 
consumer's default, delinquency, or as a penalty must be given before 
the effective date of the change. Therefore, the relevant date for 
purposes of such penalty rate increases generally is the date on which 
the increase becomes effective. For example, if a consumer makes a late 
payment on February 15, 2010 that triggers penalty pricing, a creditor 
that is not a card issuer may increase the rate effective on or before 
February 21, 2010 in compliance with Sec.  226.9(c)(1) of the July 2009 
Regulation Z Interim Final Rule, and need not provide 45 days' advance 
notice of the change.
    The Board is aware that there may be some circumstances in which a 
consumer's actions prior to February 22, 2010 trigger a penalty rate, 
but a creditor that is not a card issuer may be unable to implement 
that rate increase prior to February 22, 2010. For example, a consumer 
may make a late payment on February 15, 2010 that triggers a penalty 
rate, but the creditor may not be able to implement that rate increase 
until March 1, 2010 for operational reasons. In these circumstances, 
the Board believes that requiring 45 days' advance notice prior to the 
imposition of the penalty rate would not be appropriate, because it 
would in effect require compliance with new Sec.  226.9(g) prior to the 
February 22 effective date. Therefore, for such penalty rate increases 
that are triggered, but cannot be implemented, prior to February 22, 
2010, a creditor must either provide the consumer, prior to February 
22, 2010, with a written notice disclosing the impending rate increase 
and its effective date, or must comply with new Sec.  226.9(g). In the 
example described above, therefore, a creditor could mail to the 
consumer a notice on February 20, 2010 disclosing that the consumer has 
triggered a penalty rate increase that will be effective on March 1, 
2010. If the creditor mailed such a notice, it would not be required to 
comply with new Sec.  226.9(g). This transition guidance applies only 
to penalty rate increases triggered prior to February 22, 2010; if a 
consumer engages in actions that trigger penalty pricing on February 
22, 2010, the creditor must comply with new Sec.  226.9(g) and, 
accordingly, must provide the consumer with a notice at least 45 days 
in advance of the effective date of the increase.
    I. Renewal disclosures (Sec.  226.9(e)). Amended Sec.  226.9(e) is 
effective February 22, 2010. Accordingly, renewal notices provided on 
or after February 22, 2010 must be provided 30 days in advance of 
renewal and must comply with Sec.  226.9(e). If a creditor provides a 
renewal notice prior to February 22, 2010, even if the renewal occurs 
after the effective date, that notice need not comply with the final 
rule. For example, a card issuer may impose an annual fee and provide a 
renewal notice on February 21, 2010 consistent with the alternative 
timing rule currently in Sec.  226.9(e)(2). In addition, the 
requirement to provide a renewal notice based on an undisclosed change 
in a term required to be disclosed pursuant to Sec.  226.6(b)(1) and 
(b)(2) applies only if the change occurred on or after February 22, 
2010. The Board believes that this is appropriate because card issuers 
may not have systems in place to track whether undisclosed changes of 
the type subject to Sec.  226.9(e) have occurred prior to the effective 
date of this rule.
    J. Advertising rules (Sec.  226.16). Advertisements occurring on or 
after February 22, 2010, such as an advertisement broadcast on the 
radio, published in a newspaper, or mailed on February 22, 2010 or 
later, must comply with the new rules regarding the use of the term 
``fixed.'' Thus, an advertisement mailed on February 21, 2010 is not 
required to comply with the final rule regarding use of the term 
``fixed'' even if that advertisement is received by the consumer on 
February 28, 2010. Advertisements occurring on or after July 1, 2010, 
such as an advertisement broadcast on the radio, published in a 
newspaper, or mailed on July 1, 2010 or later, must comply with the 
remainder of the final rule regarding advertisements.
    K. Additional rules regarding disclosures. The final rule contains 
additional new rules, such as revisions to certain definitions, that 
differ from current interpretations and are prospective. For example, 
creditors may rely on current interpretations on the definition of 
``finance charge'' in Sec.  226.4 regarding the treatment of fees for 
cash advances obtained from automatic teller machines (ATMs) until July 
1, 2010. On or after that date, however, such fees must be treated as a 
finance charge. For example, for account-opening disclosures provided 
on or after July 1, 2010, a creditor will need to disclose fees to 
obtain cash advances at ATMs in accordance with the requirements Sec.  
226.6 of the final rule for disclosing finance charges. In addition, a 
HELOC creditor that chooses to continue to disclose an effective APR on 
the periodic statement will need to treat fees for obtaining cash 
advances at ATMs as finance charges for purposes of computing the 
effective APR on or after July 1, 2010. Similarly, foreign transaction 
fees must be treated as a finance charge on or after July 1, 2010.
    L. Definition of open-end credit. As discussed in the section-by-
section analysis to Sec.  226.2(a)(20), all creditors must provide 
closed-end or open-end disclosures, as appropriate in light of revised 
Sec.  226.2(a)(20) and the associated commentary, as of July 1, 2010.
    M. Implementation of disclosure rules in stages. As noted above, 
commenters indicated creditors will likely implement the disclosure 
requirements of the final rule for which compliance is mandatory by 
July 1, 2010 in stages. As a result, some disclosures may contain 
existing terminology required currently under Regulation Z while other 
disclosures may contain new terminology required in this final rule. 
For example, the final rule requires creditors to use the term 
``penalty rate'' when referring to a rate that can be increased due to 
a consumer's delinquency or default or as a penalty. In addition, 
creditors are required under the final rule to use a phrase other than 
the term ``grace period'' in describing whether a grace period is 
offered for purchases or other transactions. The final rule also 
requires in some circumstances that a creditor use a term other than 
``finance charge,'' such as

[[Page 7785]]

``interest charge.'' As discussed in the section-by-section analysis to 
the January 2009 Regulation Z Rule, during the implementation period, 
terminology need not be consistent across all disclosures. For example, 
if a creditor uses terminology required by the final rule in the 
disclosures given with applications or solicitations, that creditor may 
continue to use existing terminology in the disclosures it provides at 
account-opening or on periodic statements until July 1, 2010. 
Similarly, a creditor may use one of the new terms or phrases required 
by the final rule in a certain disclosure but is not required to use 
other terminology required by the final rule in that disclosure prior 
to the mandatory compliance date. For example, the creditor may use new 
terminology to describe the grace period, consistent with the final 
rule, in the disclosures it provides at account-opening, but may 
continue to use other terminology currently permitted under the rules 
to describe a penalty rate in the same account-opening disclosure. By 
the mandatory compliance date of this rule, however, all disclosures 
must have consistent terminology.
    N. Ability to pay rules (Sec.  226.51). Section 226.51 applies to 
the opening of all accounts on or after February 22, 2010 as well as to 
all credit line increases occurring on or after February 22, 2010 for 
existing accounts. Industry commenters suggested that the Board apply 
the provisions of Sec.  226.51 to applications received on or after 
February 22, 2010. The Board is concerned, however, that if the rule is 
applied only to applications received on or after February 22, 2010, it 
will be possible for a consumer whose application is received before 
February 22, 2010 but whose account is not opened until after February 
22, 2010 to be deprived of the protections afforded by the statute. 
TILA Section 150 states, in part, that a card issuer may not open a 
credit card account unless the card issuer has considered the 
consumer's ability to make the required payments. Similarly, for 
consumer under 21 years old, TILA Section 127(c)(8) prohibits the 
issuance of a credit card without the submission of a written 
application meeting the requirements set forth in the statute. 
Therefore, the Board believes the relevant date is the date the account 
is opened.
    Industry commenters also requested that the Board provide an 
exception to Sec.  226.51 for accounts opened in response to 
solicitations and applications mailed before February 22, 2010. For the 
same reasons associated with the Board's decision to apply Sec.  226.51 
to applications received on or after February 22, 2010, the Board 
declines to make such an exception. The Board, however, is providing a 
limited exception for firm offers of credit made before February 22, 
2010. The Fair Credit Reporting Act prohibits conditioning an offer on 
the consumer's income if income was not previously established as one 
of the card issuer's specific criteria prior to prescreening. 15. 
U.S.C. 1681a(l)(1)(A). Consequently, the Board does not believe Sec.  
226.51 should apply to accounts opened in response to firm offers of 
credit made before February 22, 2010 where income was not previously 
established as a specific criteria prior to prescreening.
    The Board also received requests that the provisions of Sec.  
226.51 not apply to credit line increases on accounts in existence 
before February 22, 2010. The Board believes that grandfathering such 
accounts would be contrary to the Credit Card Act's purpose, and 
therefore declines to make such an exception. The Board notes, however, 
that Sec.  226.51(b)(2) only applies to accounts that have been opened 
pursuant to Sec.  226.51(b)(1)(ii). As a result, if a consumer under 
the age of 21 has an existing account that was opened before February 
22, 2010 without a cosigner, guarantor, or joint accountholder, the 
issuer need not obtain the written consent required under Sec.  
226.51(b)(2) before increasing the credit limit. The issuer, however, 
must still evaluate the consumer's ability to make the required 
payments under the credit line increase, consistent with Sec.  
226.51(a). If the consumer under the age of 21 is not able to make the 
required payments under the credit line increase, the issuer may either 
refrain from granting the credit line increase or have the consumer 
obtain a cosigner, guarantor, or joint accountholder on the account, 
consistent with the procedures set forth in Sec.  226.51(b)(1)(ii), for 
the increased credit line. Moreover, if a consumer under the age of 21 
has an existing account that was opened before February 22, 2010 with a 
cosigner, guarantor, or joint accountholder, the issuer must comply 
with Sec.  226.51(b)(2) before increasing the credit limit, whether or 
not such cosigner, guarantor, or joint accountholder is at least 21 
years old.
    O. Limitations on fees (Sec.  226.52). The effective date for new 
TILA Section 127(n) is February 22, 2010. Accordingly, card issuers 
must comply with Sec.  226.52(a) beginning on February 22, 2010. 
However, Sec.  226.52(a) does not apply to accounts opened prior to 
February 22, 2010.
    Some commenters suggested that the limitations in new TILA Section 
127(n) should apply to accounts opened less than one year before the 
statutory effective date. Although the Board has generally taken the 
position that the provisions of the Credit Card Act apply to existing 
accounts as of the effective date, the Board has also generally 
attempted to avoid applying those provisions retroactively. Section 
127(n) is different than most provisions of the Credit Card Act because 
it applies only during a specified period of time (the first year after 
account opening). Thus, if the Board were to apply Sec.  226.52(a) to 
any account opened on or after February 23, 2009, card issuers could be 
in violation of the 25 percent limit as a result of fees that were 
permissible at the time they were imposed.\76\
---------------------------------------------------------------------------

    \76\ For example, if the Board interpreted new TILA Section 
127(n) as applying retroactively, a card issuer that opened an 
account with a $500 limit and $150 dollars in fees for the issuance 
or availability of credit on March 1, 2009 would be in violation of 
the Credit Card Act, despite the fact that the legislation was not 
enacted until May 22, 2009. Similarly, a card issuer that opened an 
account with a $500 limit and $125 dollars in fees for the issuance 
or availability of credit on June 1, 2009 would be prohibited from 
charging any fees to the account (other than those exempted by Sec.  
226.52(a)(2)) until June 1, 2010 as a result of imposing fees that 
were permitted at the time of imposition.
---------------------------------------------------------------------------

    The Board believes that limiting application of new TILA Section 
127(n) and Sec.  226.52(a) to accounts opened on or after February 22, 
2010 is consistent with Congress' intent. The Credit Card Act expressly 
provides that certain requirements in revised TILA Section 148(b) apply 
retroactively. Specifically, although the Credit Card Act was enacted 
on May 22, 2009, revised TILA Section 148(b)(2) states that the 
requirement that card issuers review rate increases no less frequently 
than once every six months applies to ``accounts as to which the annual 
percentage rate has been increased since January 1, 2009.'' However, 
Congress did not include any language in new TILA Section 127(n) 
suggesting that it should apply retroactively.
    P. Payment allocation (Sec.  226.53). The effective date for 
revised TILA Section 164(b) is February 22, 2010. Accordingly, card 
issuers must comply with Sec.  226.53 beginning on February 22, 2010. 
As of that date, Sec.  226.53 applies to existing as well as new 
accounts and balances. Thus, if a card issuer receives a payment that 
exceeds the required minimum periodic payment on or after February 22, 
2010, the card issuer must apply the excess amount consistent with 
Sec.  226.53.
    Q. Limitations on the imposition of finance charges (Sec.  226.54). 
The effective

[[Page 7786]]

date for new TILA Section 127(j) is February 22, 2010. Accordingly, 
card issuers must comply with Sec.  226.54 beginning on February 22, 
2010. The Board understands that card issuers generally calculate 
finance charges imposed with respect to transactions that occur during 
a billing cycle at the end of that cycle. Accordingly, if Sec.  226.54 
were applied to billing cycles that end on or after February 22, 2010, 
card issuers would be required to comply with its requirements with 
respect to transactions that occurred before February 22, 2010. 
However, for the reasons discussed above, the Board does not believe 
that Congress intended the provisions of the Credit Card Act to apply 
retroactively unless expressly provided. Accordingly, Sec.  226.54 
applies to the imposition of finance charges with respect to billing 
cycles that begin on or after February 22, 2010.
    R. Limitations on increasing annual percentage rates, fees, and 
charges (Sec.  226.55). The effective date for revised TILA Section 171 
and new TILA Section 172 is February 22, 2010. Accordingly, compliance 
with Sec.  226.55 is mandatory beginning on February 22, 2010.
    Prohibition on increases in rates and fees (Sec.  226.55(a)). 
Beginning on February 22, 2010, Sec.  226.55(a) prohibits a card issuer 
from increasing an annual percentage rate or a fee or charge required 
to be disclosed under Sec.  226.6(b)(2)(ii), (iii), or (xii) unless the 
increase is consistent with one of the exceptions in Sec.  226.55(b) or 
the implementation guidance discussed below. The prohibition in Sec.  
226.55(a) applies to both existing accounts and accounts opened after 
February 22, 2010.
    Temporary rates--generally (Sec.  226.55(b)(1)).\77\ If a rate that 
will increase upon the expiration of a specified period of time applies 
to a balance on February 22, 2010, Sec.  226.55(b)(1) permits the card 
issuer to apply an increased rate to that balance at expiration of the 
period so long as the card issuer previously disclosed to the consumer 
the length of the period and the rate that would apply upon expiration 
of the period. For example, if on February 22, 2010 a 5% rate applies 
to a $1,000 purchase balance and that rate is scheduled to increase to 
15% on June 1, 2010, the card issuer may apply the 15% rate to any 
remaining portion of the $1,000 balance on June 1, provided that the 
card issuer previously disclosed that the 15% rate would apply on June 
1.
---------------------------------------------------------------------------

    \77\ For simplicity, this implementation guidance refers to 
rates subject to Sec.  226.55(b)(1) as ``temporary rates.'' However, 
pursuant to comment 55(b)(1)-3, this guidance is intended to apply 
equally to deferred interest or similar programs.
---------------------------------------------------------------------------

    A card issuer has satisfied the disclosure requirement in Sec.  
226.55(b)(1)(i) if it has provided disclosures consistent with Sec.  
226.9(c)(2)(v)(B), as adopted by the Board in the July 2009 Regulation 
Z Interim Final Rule. Because Sec.  226.9(c)(2)(v)(B) became effective 
on August 20, 2009, the Board expects that card issuers will have 
satisfied the disclosure requirement in Sec.  226.55(b)(1)(i) with 
respect to any temporary rate offered on or after that date. However, 
the Board understands that, with respect to temporary rates offered 
prior to August 20, 2009, card issuers may be uncertain whether the 
disclosures provided at the time those rates were offered are 
sufficient to comply with Sec.  226.9(c)(2)(v)(B) and Sec.  
226.55(b)(1)(i). The Board addressed this issue in the implementation 
guidance for Sec.  226.9(c)(2)(v)(B) in the July 2009 Regulation Z 
Interim Final Rule. See 74 FR 36091-36092. That guidance applies 
equally with respect to Sec.  226.55(b)(1)(i).
    Specifically, the Board stated in the July 2009 Regulation Z 
Interim Final Rule that, if prior to August 20, 2009 a creditor 
provided disclosures that generally complied with Sec.  
226.9(c)(2)(v)(B) but described the type of increased rate that would 
apply upon expiration of the period instead of disclosing the actual 
rate,\78\ the creditor could utilize the exception in Sec.  
226.9(c)(2)(v)(B). See 74 FR 36092. In these circumstances, a card 
issuer has also satisfied the requirements of Sec.  226.55(b)(1)(i).
---------------------------------------------------------------------------

    \78\ For example: ``After six months, the standard annual 
percentage rate applicable to purchases will apply.''
---------------------------------------------------------------------------

    In addition, the Board acknowledged in the July 2009 Regulation Z 
Interim Final Rule that, prior to August 20, 2009, some creditors may 
not have provided written disclosures of the period during which the 
temporary rate would apply and the increased rate that would apply 
thereafter or may not be able to determine if they provided such 
disclosures without conducting extensive research.\79\ The Board stated 
that, in these circumstances, a creditor could utilize the exception in 
Sec.  226.9(c)(2)(v)(B) if it provided written disclosures that met the 
requirements in Sec.  226.9(c)(2)(v)(B) prior to August 20, 2009 or if 
it can demonstrate that it provided oral disclosures that otherwise 
meet the requirements in Sec.  226.9(c)(2)(v)(B). See 74 FR 36092. 
Similarly, in these circumstances, a card issuer that satisfies either 
of these criteria has also satisfied the requirements of Sec.  
226.55(b)(1)(i).
---------------------------------------------------------------------------

    \79\ For example, some creditors may have provided these 
disclosures orally.
---------------------------------------------------------------------------

    Temporary rates--six-month requirement (Sec.  226.55(b)(1)). The 
requirement in Sec.  226.55(b)(1) that temporary rates expire after a 
period of no less than six months applies to temporary rates offered on 
or after February 22, 2010. Thus, for example, if a card issuer offered 
a temporary rate on December 1, 2009 that applies to purchases until 
March 1, 2010, Sec.  226.55(b)(1) would not prohibit the card issuer 
from applying an increased rate to the purchase balance on March 1 so 
long as the card issuer previously disclosed the period during which 
the temporary rate would apply and the increased rate that would apply 
thereafter. Some commenters suggested that the six-month requirement in 
Sec.  226.55(b)(1) (which implements new TILA Section 172(b)) should 
apply to temporary rates offered less than six months before the 
statutory effective date (in other words, any temporary rate offered 
after September 22, 2009). However, as discussed above with respect to 
the restrictions on fees during the first year after account opening in 
new TILA Section 127(n) and new Sec.  226.52(a), the Board believes 
that limiting application of the six-month requirement in new TILA 
Section 172(b) to temporary rates offered on or after February 22, 2010 
is consistent with Congress' intent because--in contrast to revised 
TILA Section 148--Congress did not expressly provide that new TILA 
Section 172(b) applies retroactively.
    Variable rates (Sec.  226.55(b)(2)). If a rate that varies 
according to a publicly-available index applies to a balance on 
February 22, 2010, the card issuer may continue to adjust that rate due 
to changes in the relevant index consistent with Sec.  226.55(b)(2). 
However, if on February 22, 2010 the account terms governing the 
variable rate permit the card issuer to exercise control over the 
operation of the index in a manner that is inconsistent with Sec.  
226.55(b)(2) or its commentary, the card issuer is prohibited from 
enforcing those terms with respect to subsequent adjustments to the 
variable rate, even if the terms of the account have not yet been 
amended consistent with the 45-day notice requirement in Sec.  
226.9(c). The following examples illustrate the application of this 
guidance:
     Assume that the billing cycles for a credit card account 
begin on the first day of the month and end on the last day of the 
month. The terms of the account provide that, at the beginning of each 
billing cycle, the card issuer will

[[Page 7787]]

calculate the variable rate by adding a margin of 10 percentage points 
to the value of a publicly-available index on the last day of the prior 
billing cycle. However, contrary to Sec.  226.55(b)(2), the terms of 
the account also provide that the variable rate will not decrease below 
15%. See comment 55(b)(2)-2. On January 30, 2010, the card issuer 
provides a notice pursuant to Sec.  226.9(c)(2) informing the consumer 
that, effective March 16, the 15% fixed minimum rate will be removed 
from the account terms. On January 31, the value of the index is 3% 
but, consistent with the fixed minimum rate, the card issuer applies a 
15% rate beginning on February 1. The card issuer is not required to 
adjust the variable rate on February 22 because the terms of the 
account do not provide for a rate adjustment until the beginning of the 
March billing cycle. However, if the value of the index is 3% on 
February 28, the card issuer must apply a 13% rate beginning on March 
1, even though the amendment to the account terms is not effective 
until March 16.
     Assume that the billing cycles for a credit card account 
begin on the first day of the month and end on the last day of the 
month. The terms of the account provide that, at the beginning of each 
billing cycle, the card issuer will calculate the variable rate by 
adding a margin of 10 percentage points to the value of a publicly-
available index. However, contrary to Sec.  226.55(b)(2), the terms of 
the account also provide that the variable rate will be calculated 
based on the highest index value during the prior billing cycle. See 
comment 55(b)(2)-2. On January 30, 2010, the card issuer provides a 
notice pursuant to Sec.  226.9(c)(2) informing the consumer that, 
effective March 16, the terms of the account will be amended to provide 
that the variable rate will be calculated based on the value of the 
index on the last day of the prior billing cycle. On January 31, the 
value of the index is 4.9% but, because the highest value for the index 
during the January billing cycle was 5.1%, the card issuer applies a 
15.1% rate beginning on February 1. The card issuer is not required to 
adjust the variable rate on February 22 because the terms of the 
account do not provide for a rate adjustment until the beginning of the 
March billing cycle. However, if the value of the index is 4.9% on 
February 28, the card issuer complies with Sec.  226.55(b)(2) if it 
applies a 14.9% rate beginning on March 1, even though the amendment to 
the account terms is not effective until March 16.
    Increases in rates and certain fees and charges that apply to new 
transactions (Sec.  226.55(b)(3)). Section 226.55(b)(3) applies to any 
increase in a rate or in a fee or charge required to be disclosed under 
Sec.  226.6(b)(2)(ii), (iii), or (xii) that is effective on or after 
February 22, 2010. Some commenters argued that the Board should adopt 
guidance similar to that in the July 2009 Regulation Z Interim Final 
Rule, where the Board determined that the relevant date for purposes of 
compliance with revised Sec.  226.9(c)(2) and new Sec.  226.9(g) was 
generally the date on which the notice was provided. That guidance, 
however, was based in large part on concerns about requiring creditors 
to comply with revised TILA Section 127(i) with respect to notices 
provided as much as 45 days prior to the statutory effective date. See 
74 FR 36091.
    In contrast, under this guidance, card issuers are only required to 
comply with revised TILA Section 171 with respect to increases that 
take effect after the statutory effective date. Furthermore, if the 
relevant date for compliance with Sec.  226.55(b)(3) was the date on 
which a Sec.  226.9(c) or (g) notice was provided, card issuers would 
be permitted to apply increased rates, fees, or charges to existing 
balances until April 7, 2010 so long as the notice was sent before the 
Credit Card Act's February 22, 2010 effective date. The Board does not 
believe that this was Congress' intent.
    The following examples illustrate the application of this guidance:
     On January 7, 2010, a card issuer provides a notice of an 
increase in the purchase rate pursuant to Sec.  226.9(c). Consistent 
with Sec.  226.9(c), the increased rate is effective on February 21, 
2010. Therefore, Sec.  226.55(b)(3) does not apply. Accordingly, on 
February 21, 2010, the card issuer may apply the increased rate to both 
new purchases and the existing purchase balance (provided the consumer 
has not rejected application of the increased rate to the existing 
balance pursuant to Sec.  226.9(h)).
     On January 8, 2010, a card issuer provides a notice of an 
increase in the purchase rate pursuant to Sec.  226.9(c). Consistent 
with Sec.  226.9(c), the increased rate is effective on February 22, 
2010. Therefore, Sec.  226.55(b)(3) applies. Accordingly, on February 
22, 2010, the card issuer cannot apply the increased rate to purchases 
that occurred on or before January 22, 2010 (which is the fourteenth 
day after provision of the notice) but may apply the increased rate to 
purchases that occurred after that date.
    Prohibition on increasing rates and certain fees and charges during 
first year after account opening (Sec.  226.55(b)(3)(iii)). The 
prohibition in Sec.  226.55(b)(3)(iii) on increasing rates and certain 
fees and charges during the first year after account opening applies to 
accounts opened on or after February 22, 2010. Some commenters 
suggested that this provision (which implements new TILA Section 
172(a)) should apply to accounts opened less than one year before the 
statutory effective date. However, as discussed above with respect to 
new TILA Section 172(b), the Board believes that limiting application 
of new TILA Section 172(a) to accounts opened on or after February 22, 
2010 is consistent with Congress' intent because Congress did not 
expressly provide that new TILA Section 172(a) applies retroactively.
    Delinquencies of more than 60 days (Sec.  226.55(b)(4)). Section 
226.55(b)(4) applies once an account becomes more than 60 days 
delinquent even if the delinquency began prior to February 22, 2010. 
For example, if the required minimum periodic payment due on January 1, 
2010 has not been received by March 3, 2010, Sec.  226.55(b)(4) permits 
the card issuer to apply an increased rate, fee, or charge to existing 
balances on the account after providing notice pursuant to Sec.  
226.9(c) or (g).
    Workout and temporary hardship arrangements (Sec.  226.55(b)(5)). 
Section 226.55(b)(5) applies to workout and temporary hardship 
arrangements that apply to an account on February 22, 2010. A card 
issuer that has complied with Sec.  226.9(c)(2)(v)(D) or the transition 
guidance for that provision has satisfied the disclosure requirement in 
Sec.  226.55(b)(5)(i).
    If a workout or temporary hardship arrangement applies to an 
account on February 22, 2010 and the consumer completes or fails to 
comply with the terms of the arrangement on or after that date, Sec.  
226.55(b)(5)(ii) only permits the card issuer to apply an increased 
rate, fee, or charge that does not exceed the rate, fee, or charge that 
applied prior to commencement of the workout arrangement. For example, 
assume that, on January 1, 2010, a card issuer decreases the rate that 
applies to a $5,000 balance from 30% to 5% pursuant to a workout or 
temporary hardship arrangement between the issuer and the consumer. 
Under this arrangement, the consumer must pay by the fifteenth of each 
month in order to retain the 5% rate. The card issuer does not receive 
the payment due on March 15 until March 20. In these circumstances, 
Sec.  226.55(b)(5)(ii) does not permit the card issuer to apply a rate 
to any remaining portion of the $5,000 balance that exceeds the 30% 
penalty rate.
    Servicemembers Civil Relief Act (Sec.  226.55(b)(6)). If a card 
issuer reduced an annual percentage rate pursuant to

[[Page 7788]]

50 U.S.C. app. 527 prior to February 22, 2010 and the consumer leaves 
military service on or after that date, Sec.  226.55(b)(6) only permits 
the card issuer to apply an increased rate that does not exceed the 
rate that applied prior to the reduction.
    Closed or acquired accounts and transferred balances (Sec.  
226.55(d)). Section 226.55(d) applies to any credit card account under 
an open-end (not home-secured) consumer credit plan that is closed on 
or after February 22, 2010 or acquired by another creditor on or after 
February 22, 2010. Section 226.55(d) also applies to any balance that 
is transferred from a credit card account under an open-end (not home-
secured) consumer credit plan issued by a creditor to another credit 
account issued by the same creditor or its affiliate or subsidiary on 
or after February 22, 2010. Thus, beginning on February 22, 2010, card 
issuers are prohibited from increasing rates, fees, or charges in these 
circumstances to the extent inconsistent with Sec.  226.55, its 
commentary, and this guidance.
    S. Over-the-limit transactions (Sec.  226.56). For credit card 
accounts opened prior to February 22, 2010, a card issuer 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. Card issuers that choose to do so are 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 
and the card issuer sends written confirmation of the opt-in. The final 
rule does not, however, require that a card issuer waive fees that are 
incurred in connection with over-the-limit transactions that occur 
prior to February 22, 2010 even if the consumer has not opted in by the 
effective date. Thus, for example, a card issuer may assess fees if the 
consumer engages in an over-the-limit transaction prior to February 22, 
2010, but the transaction posts or is charged to the account after that 
date, even if the consumer has not opted in by the effective date.
    Early compliance. For existing accounts, an opt-in requirement 
could potentially result in a disruption in a consumer's ability to 
complete transactions if card issuers could not send notices, and 
obtain consumer opt-ins, until February 22, 2010. Accordingly, the 
Board solicited comment regarding whether a creditor should be 
permitted to obtain consumer consent for the payment of over-the-limit 
transactions prior to that date. Allowing creditors to obtain consumer 
consent prior to February 22, 2010 could also allow creditors to phase 
in their delivery of opt-in notices and processing of consumer 
consents.
    Industry commenters agreed that the rule should permit creditors to 
obtain consents prior to February 22, 2010 to enable both creditors and 
consumers to avoid a flood of opt-in notices and transaction denials on 
or after that date. One industry commenter urged the Board to permit 
creditors to obtain valid consumer consents so long as they follow the 
requirements set forth in the proposed rule and provide the proposed 
model form. In contrast, consumer groups and one state government 
agency argued that creditors should not be permitted to obtain consumer 
consents prior to the effective date of the rule because they did not 
believe that the rule as proposed afforded consumers adequate 
protections.
    Under the final rule, card issuers may provide the notice and 
obtain the consumer's affirmative consent prior to the effective date, 
provided that the card issuer complies with all the requirements in 
Sec.  226.56, including the requirements to segregate the notice and 
provide written confirmation of the consumer's choice. The opt-in 
notice must also include the specified content in Sec.  226.56(e)(1). 
Use of Model Form G-25(A), or a substantially similar notice, 
constitutes compliance with the notice requirements in Sec.  
226.56(e)(1). See Sec.  226.56(e)(3). If an existing account-holder 
responds to an opt-in notice provided before February 22, 2010 and 
expresses a desire not to opt in, the Board expects that the card 
issuer would honor the consumer's choice at that time, unless the card 
issuer has clearly and conspicuously explained in the opt-in notice 
that the opt-in protections do not apply until that date.
    In addition, in order to minimize potential disruptions to the 
payment systems that may otherwise result if card issuers could not 
send notices or obtain consumer consents until near the effective date 
of the rule, the Board believes that it is appropriate to treat opt-in 
notices that follow the model form as proposed as a substantially 
similar notice to the final model form for purposes of Sec.  
226.56(e)(3). That is, card issuers that provide opt-in notices based 
on the proposed model form would be deemed to be in compliance with the 
over-the-limit opt-in provisions, provided that the other requirements 
of the rule, including the written confirmation requirement, are 
satisfied. The Board anticipates that such relief would be temporary, 
however, and expects that card issuers will transition to the final 
Model Form G-25(A) as soon as reasonably practicable after February 22, 
2010 in order to retain the safe harbor.
    Prohibited practices. Sections 226.56(j)(2)-(4) prohibit certain 
credit card acts or practices regarding the imposition of over-the-
limit fees. These prohibitions are based on the Board's authority under 
TILA Section 127(k)(5)(B) 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. However, compliance with the provisions of the final rule is not 
required before February 22, 2010. Thus, the final rule and the Board's 
accompanying analysis should have no bearing on whether or not acts or 
practices restricted or prohibited under this rule are unfair or 
deceptive before the effective date of this rule.
    Unfair acts or practices can be addressed through case-by-case 
enforcement actions against specific institutions, through regulations 
applying to all institutions, or both. An enforcement action concerns a 
specific institution's conduct and is based on all of the facts and 
circumstances surrounding that conduct. By contrast, a regulation is 
prospective and applies to the market as a whole, drawing bright lines 
that distinguish broad categories of conduct.
    Moreover, as part of the Board's unfairness analysis, the Board has 
considered that broad regulations, such as the prohibitions in 
connection with over-the-limit practices in the final rule, can require 
large numbers of institutions to make major adjustments to their 
practices, and that there could be more harm to consumers than benefit 
if the regulations were effective earlier than the effective date. If 
institutions were not provided a reasonable time to make changes to 
their operations and systems to comply with the final rule, they would 
either incur excessively large expenses, which would be passed on to 
consumers, or cease engaging in the regulated activity altogether, to 
the detriment of consumers. For example, card issuers may be required 
to make significant systems changes in order to ensure that fees and 
interest charges assessed during a billing cycle did not cause an over-
the-limit fee or charge to be imposed on a consumer's account. Thus, 
because the Board finds an act or practice unfair only when the harm 
outweighs the benefits to consumers or to competition, the 
implementation period preceding the effective date set forth in the 
final rule is integral to the

[[Page 7789]]

Board's decision to restrict or prohibit certain acts or practices by 
regulation.
    For these reasons, acts or practices occurring before the effective 
date of the final rule will be judged on the totality of the 
circumstances under applicable laws or regulations. Similarly, acts or 
practices occurring after the rule's effective date that are not 
governed by these rules will be judged on the totality of the 
circumstances under applicable laws or regulations. Consequently, only 
acts or practices covered by the rule that occur on or after the 
effective date would be prohibited by the regulation.
    T. Reporting and marketing rules for college student open-end 
credit (Sec.  226.57).
    Prohibited inducements (Sec.  226.57(c)). All tangible items 
offered to induce a college student to apply for or participate in an 
open end consumer credit plan, 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, are prohibited on or after February 
22, 2010 pursuant to Sec.  226.57(c). If a college student has 
submitted an application for, or agreed to participate in, an open-end 
consumer credit plan prior to February 22, 2010, in reliance on the 
offer of a tangible item, such item may still be provided to the 
student on or after February 22, 2010.
    Submission of reports to Board (Sec.  226.57(d)). Section 
226.57(d)(3) provides that card issuers must submit the first report 
regarding college credit card agreements for the 2009 calendar year to 
the Board by February 22, 2010.
    U. Internet posting of credit card agreements (Sec.  226.58). 
Section 226.58(c)(2) provides that card issuers must submit credit card 
agreements offered to the public as of December 31, 2009 to the Board 
no later than February 22, 2010.
    V. Open-End Credit Secured by Real Property.
    In the May 2009 Regulation Z Proposed Clarifications, the Board 
solicited comment on whether additional transition guidance is needed 
for creditors that offer open-end credit secured by real property, 
where it is unclear whether that property is, or remains, the 
consumer's dwelling. The issue arose because the January 2009 
Regulation Z Rule preserved certain existing rules, for example the 
rules under Sec. Sec.  226.6, 226.7, and 226.9, for home-equity plans 
subject to Sec.  226.5b pending the completion of the Board's separate 
review of the rules applicable to home-secured credit. The Board noted 
that creditors offering open-end credit secured by real property may be 
uncertain how they should comply with the January 2009 Regulation Z 
Rule. Financial institution commenters suggested that creditors be 
permitted to treat all open-end credit secured by residential property 
as covered by Sec.  226.5b, rather than the rules for open-end (not 
home-secured) credit, regardless of whether the property is the 
consumer's dwelling. Consumer group commenters did not address this 
issue.
    In the August 2009 Regulation Z HELOC Proposal, the Board proposed 
to adopt a new comment 5-1 that would provide guidance in situations 
where a creditor is uncertain whether an open-end credit plan is 
covered by the Sec.  226.5b rules for HELOCs or the rules for open-end 
(not home-secured) credit. The comment period on this proposal closed 
on December 24, 2009, and the Board is still considering the comments 
it received.
    Accordingly, the Board believes that until the August 2009 
Regulation Z HELOC Proposal is finalized, it is appropriate to permit 
creditors that offer open-end credit secured by real property that are 
uncertain whether the plan is covered by Sec.  226.5b to comply with 
this final rule by complying with, at their option, either the new 
rules that apply to open-end (not home-secured) credit, or the existing 
rules applicable to home-equity plans. Therefore, if a creditor that 
offers open-end credit secured by real property is uncertain whether 
that property is, or remains, the consumer's dwelling, that creditor 
may comply with either the new rules regarding account-opening 
disclosures in Sec.  226.6(b), periodic statement disclosures in Sec.  
226.7(b), and change-in-terms notices in Sec.  226.9(c)(2), or the 
existing rules as preserved in Sec. Sec.  226.6(a), 226.7(a), and 
226.9(c)(1). However, such a creditor must treat the product 
consistently for the purpose of the disclosures in Sec. Sec.  226.6, 
226.7, and 226.9(c); for example, a creditor may not provide account-
opening disclosures consistent with the new requirements of Sec.  
226.6(b) and periodic statement disclosures consistent with the 
existing requirements for HELOCs under Sec.  226.7(a). In addition, as 
of the mandatory compliance date for this final rule, creditors must 
comply with any requirements of this final rule that apply to all open-
end credit regardless of whether it is home-secured, such as the 
provision in Sec.  226.10(d) regarding weekend or holiday due dates. 
This transition guidance applies only to provisions of Regulation Z 
that are amended by this rulemaking; accordingly, this transition 
guidance does not address creditors' responsibilities under other 
sections of Regulation Z, such as Sec. Sec.  226.5b and 226.15.

VII. 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 the October 2009 Regulation Z Proposal, 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 October 
2009 Regulation Z Proposal were substantially similar to provisions in 
those rules, the Board continued 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 addressed practices or mandated disclosures that were not 
addressed in the Board's January 2009 Regulation Z Rules and July 2009 
Regulation Z Interim Final Rule. The Board prepared an initial 
regulatory flexibility analysis in connection with the October 2009 
Regulation Z Proposal, which reached the preliminary conclusion that 
the proposed rule would impose additional requirements and burden on 
small entities. See 74 FR 54198-54200 (October 21, 2009). The Board 
received no significant comments addressing the initial regulatory 
flexibility analysis. Therefore, based on its prior analyses and for 
the reasons stated below, the Board has concluded that the final rule 
will have a significant economic impact on a substantial number of 
small entities. Accordingly, the Board has prepared the following final 
regulatory flexibility analysis pursuant to section 604 of the RFA.
    1. Statement of the need for, and objectives of, the rule. The 
final 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

[[Page 7790]]

open-end consumer credit plans. The supplementary information above 
describes in detail the reasons, objectives, and legal basis for each 
component of the final rule.
    2. Summary of the significant issues raised by public comment in 
response to the Board's initial analysis, the Board's assessment of 
such issues, and a statement of any changes made as a result of such 
comments. As discussed above, the Board's initial regulatory 
flexibility analysis reached the preliminary conclusion that the 
proposed rule would have a significant economic impact on a substantial 
number of small entities. See 74 FR 54199 (October 21, 2009). The Board 
received no comments specifically addressing this analysis.
    3. Small entities affected by the proposed rule. All creditors that 
offer open-end credit plans are subject to the final 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 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 final 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 final rule is unknown because 
the number of 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.)
    4. Recordkeeping, reporting, and compliance requirements. The final 
rule does not impose any new recordkeeping requirements. The final rule 
does, however, impose new reporting and compliance requirements. The 
reporting and compliance requirements of this 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 final 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.
Provisions Regarding Consumer Credit Card Accounts
    This subsection summarizes several of the amendments to Regulation 
Z and their likely impact on small entities that are card issuers. More 
information regarding these and other changes can be found in V. 
Section-by-Section Analysis.
    Section 226.7(b)(11) generally requires 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.
    Section 226.7(b)(12) generally requires 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 will require 
card issuers that are small entities to calculate certain minimum 
payment estimates for each account. The Board, however, will reduce the 
burden on small entities by providing model forms which can be used to 
ease compliance with the Board's final rule.
    Section 226.9(g)(3) requires 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 final rule's disclosure 
requirement with the disclosure already required under Sec.  226.9(g).
    Section 226.10(e) limits 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. Section 226.10(e) will reduce 
revenue that some small entities derive from fees associated with 
certain payment methods.
    Section 226.52 generally limits the imposition of fees by card 
issuers during the first year after account opening. This provision 
will reduce revenue that some entities derive from fees.
    Section 226.54 prohibits 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 will 
reduce revenue that some small entities derive from finance charges.
    Section 226.55(a) generally prohibits 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 will reduce 
interest revenue and other revenue that certain small entities derive 
from fees and charges.
    Section 226.55(b)(3) requires 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.
    Section 226.55(b)(5) requires 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.
    Section 226.56 prohibits 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 will 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. Section 226.56 may 
reduce revenue that certain small entities derive from fees and

[[Page 7791]]

charges related to over-the-limit transaction. In addition, Sec.  
226.56 will 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.
    Section 226.58 requires 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. Section 
226.58(c)(5), however, provides a de minimis exception, which will 
reduce the economic impact and compliance burden on small entities. 
Under Sec.  226.58(c)(5), a card issuer is not 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 final rule would have a significant economic impact 
on a substantial number of small entities.
    5. Other federal rules. Other than the January 2009 FTC Act Rule 
and similar rules adopted by other Agencies, the Board has not 
identified any federal rules that duplicate, overlap, or conflict with 
the Board's revisions to TILA. As discussed in the supplementary 
information to the final rule, the Board is withdrawing its January 
2009 FTC Act Rule, which is published elsewhere in today's Federal 
Register.
    6. Significant alternatives to the final revisions. The provisions 
of the final rule implement the statutory requirements of the Credit 
Card Act that go into effect on February 22, 2010. The Board sought to 
avoid imposing additional burden, while effectuating the statute in a 
manner that is beneficial to consumers. The Board did not receive any 
comment on any significant alternatives, consistent with the Credit 
Card Act, which would minimize impact of the final rule on small 
entities.

VIII. 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 
final 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 final 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.\80\
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    \80\ 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).
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    This information collection is required to provide benefits for 
consumers and is mandatory (15 U.S.C