[Federal Register Volume 78, Number 60 (Thursday, March 28, 2013)]
[Rules and Regulations]
[Pages 18795-18798]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-07066]



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Rules and Regulations
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Federal Register / Vol. 78, No. 60 / Thursday, March 28, 2013 / Rules 
and Regulations

[[Page 18795]]



BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Part 1026

[Docket No. CFPB-2012-0015]
RIN 3170-AA21


Truth in Lending (Regulation Z)

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Final rule; Official Interpretations.

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SUMMARY: The Bureau of Consumer Financial Protection (Bureau) is 
amending Regulation Z, which implements the Truth in Lending Act, and 
the Official Interpretations of the regulation, which interpret the 
requirements of Regulation Z. Regulation Z generally limits the total 
amount of fees that a credit card issuer may require a consumer to pay 
with respect to an account to 25 percent of the credit limit in effect 
when the account is opened. Regulation Z previously stated that this 
limitation applies prior to account opening and during the first year 
after account opening. This final rule amends Regulation Z to apply the 
limitation only during the first year after account opening.

DATES: This rule is effective March 28, 2013.

FOR FURTHER INFORMATION CONTACT: Gregory Evans, Counsel, Office of 
Regulations, Bureau of Consumer Financial Protection, 1700 G Street 
NW., Washington, DC 20552, at (202) 435-7700.

SUPPLEMENTARY INFORMATION: 

I. Background

    The Credit Card Accountability Responsibility and Disclosure Act of 
2009 (Credit Card Act) was signed into law on May 22, 2009. Public Law 
111-24, 123 Stat. 1734 (2009). The Credit Card Act primarily amended 
the Truth in Lending Act (TILA) and instituted new substantive and 
disclosure requirements to establish fair and transparent practices for 
open-end consumer credit plans.
    The Credit Card Act added TILA section 127(n)(1), which states that 
``[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,'' 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.'' 15 U.S.C. 1637(n)(1).
    On January 12, 2010, the Board of Governors of the Federal Reserve 
System (Board) issued a final rule implementing new TILA section 127(n) 
in 12 CFR 226.52(a). See 75 FR 7658, 7819 (Feb. 22, 2010) (January 2010 
Final Rule). Section 226.52(a) limits the total amount of fees that a 
credit card issuer may require a consumer to pay with respect to an 
account to ``25 percent of the credit limit in effect when the account 
is opened.'' Id. Under the Board's January 2010 Final Rule, this 
limitation applied only during the first year after account opening. 
Id. This rule became effective on February 22, 2010. On April 8, 2011, 
the Board issued a final rule expanding Sec.  226.52(a) to apply to 
fees the consumer is required to pay with respect to an account prior 
to account opening.\1\ The change was based on the Board's 
understanding that certain credit card issuers were ``requiring 
consumers to pay application or processing fees prior to account 
opening that, when combined with other fees charged to the account 
after account opening, exceed 25 percent of the account's initial 
credit limit.'' 76 FR at 22977. The Board viewed this practice as 
``inconsistent with the intent of [TILA] [s]ection 127(n)(1) insofar as 
it alters the statutory relationship between the costs and benefits of 
opening a credit card account.'' Id. The Board's change to Sec.  
226.52(a) was scheduled to become effective on October 1, 2011. Id. at 
22948.
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    \1\ 76 FR 22948, 23002 (Apr. 25, 2011) (April 2011 Final Rule). 
The Board proposed this provision for comment in November 2010. 75 
FR 67458, 67475 (Nov. 2, 2010).
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    On July 20, 2011, a credit card issuer filed a lawsuit in the 
United States District Court for the District of South Dakota, alleging 
that the Board exceeded its authority by expanding Sec.  226.52(a) to 
apply to fees the consumer is required to pay prior to account opening. 
See First Premier Bank v. U.S. Consumer Fin. Prot. Bureau, 819 F. Supp. 
2d. 906 (D.S.D. Sept. 23, 2011). On July 21, 2011, the Board's 
rulemaking authority to implement the provisions of TILA transferred to 
the Bureau pursuant to sections 1061 and 1100A of the Dodd-Frank Wall 
Street Reform and Consumer Protection Act (Dodd-Frank Act). Public Law 
111-203 (2010).\2\ On August 5, 2011, the card issuer filed a motion 
for a preliminary injunction, asking the court to postpone the October 
1, 2011 effective date with respect to the application of Sec.  226.52 
to fees paid prior to account opening. The district court granted the 
motion for a preliminary injunction on September 23, 2011. First 
Premier Bank, 819 F. Supp. 2d. at 923 (South Dakota litigation). As a 
result of the court's order, the portion of the Board's 2011 final rule 
applying Sec.  226.52(a) to pre-account opening fees has not become 
effective.
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    \2\ See 12 U.S.C. 5581; 15 U.S.C. 1604(a); Designated Transfer 
Date, 75 FR 57252 (Sept. 20, 2010).
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    On December 22, 2011, the Bureau published in the Federal Register 
an interim final rule to reflect its assumption of rulemaking authority 
over Regulation Z. 76 FR 79768 (Dec. 22, 2011). The interim final rule 
made only technical changes to Regulation Z, such as noting the 
Bureau's authority and renumbering Regulation Z as 12 CFR Part 1026. 
Accordingly, the provision addressed in this rulemaking and in the 
litigation discussed above is properly cited as 12 CFR 1026.52(a).

II. Summary of the Bureau's Rulemaking Process

A. The Bureau's Proposal

    On April 12, 2012, the Bureau issued a proposal to amend 12 CFR 
1026.52(a), and associated Official Interpretations, to provide that 
the fee limit of 25 percent of the credit limit in effect when

[[Page 18796]]

the account is opened applies only during the first year after account 
opening. 77 FR 21875 (Apr. 12, 2012) (April 2012 Proposed Rule). The 
Bureau issued the April 2012 Proposed Rule to resolve the uncertainty 
created by the South Dakota litigation discussed above. The comment 
period closed on June 11, 2012.

B. Summary of Public Comments

    In response to the April 2012 Proposed Rule, the Bureau received 
over 50 electronically submitted comments, as well as approximately 
1,000 mailed form letters, prior to the comment closing date. The 
majority of the comment letters were submitted by members of the 
public, although the Bureau also received comments from industry, 
consumer advocacy groups, and the New York State Office of the Attorney 
General.
    Many members of the public opposed the April 2012 Proposed Rule, 
arguing that amending 12 CFR 1026.52(a) would reduce protections for 
vulnerable consumers. Consumer advocates and the New York State Office 
of the Attorney General expressed similar views. Some of these 
commenters suggested that the Bureau pursue other means of limiting 
pre-account opening fees, such as writing additional rules, 
coordinating examination activities, or bringing enforcement actions. 
Industry representatives, however, supported the proposed rule as a 
more accurate implementation of the Credit Card Act and an effective 
way to resolve the current litigation.

III. Legal Authority

    The Bureau is issuing this final rule pursuant to its authority 
under TILA and the Dodd-Frank Act. Effective July 21, 2011, section 
1061 of the Dodd-Frank Act transferred to the Bureau the ``consumer 
financial protection functions'' previously vested in certain other 
Federal agencies. The term ``consumer financial protection functions'' 
is defined to include ``all authority to prescribe rules or issue 
orders or guidelines pursuant to any Federal consumer financial law, 
including performing appropriate functions to promulgate and review 
such rules, orders, and guidelines.'' \3\ TILA is a Federal consumer 
financial law.\4\ Accordingly, effective July 21, 2011, except with 
respect to persons excluded from the Bureau's rulemaking authority by 
section 1029 of the Dodd-Frank Act, the authority of the Board to issue 
regulations pursuant to TILA transferred to the Bureau.
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    \3\ Public Law 111-203, Section 1061(a)(1). Effective on the 
designated transfer date, the Bureau was also granted ``all powers 
and duties'' vested in each of the Federal agencies, relating to the 
consumer financial protection functions, on the day before the 
designated transfer date.
    \4\ Public Law 111-203, Section 1002(14) (defining ``Federal 
consumer financial law'' to include ``enumerated consumer laws''); 
id. Section 1002(12) (defining ``enumerated consumer laws'' to 
include TILA).
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    TILA, as amended by the Dodd-Frank Act, authorizes the Bureau to 
``prescribe regulations to carry out the purposes of [TILA].'' Public 
Law 111-203, Section 1100A(2); 15 U.S.C. 1604(a). These regulations may 
contain such classifications, differentiations, or other provisions, 
and may provide for such adjustments and exceptions for any class of 
transactions, that in the Bureau's judgment are necessary or proper to 
effectuate the purpose of TILA, facilitate compliance with TILA, or 
prevent circumvention or evasion of TILA. Id.

IV. Summary of the Final Rule

    The Bureau is amending Sec.  1026.52(a) to provide that the 
limitation on credit card fees applies only during the first year after 
account opening. The Bureau is also amending the Official 
Interpretations of Sec.  1026.52(a) to reflect this change and to 
correct a mathematical error present in the Board's Official Staff 
Interpretations, and now the Bureau's Official Interpretations, since 
the Board's January 2010 Final Rule.
    The Bureau takes seriously the concerns raised by commenters, 
particularly with respect to the effect that the rule may have on 
vulnerable consumers. The Bureau believes, however, that the final rule 
is necessary to resolve the uncertainty created by the South Dakota 
litigation discussed above. The Bureau will continue to monitor the 
credit card market to determine if it should take further action to 
protect consumers, using one or more of its powers under TILA, the 
Credit Card Act, or the Dodd-Frank Act.

V. Section 1022(b)(2) of the Dodd-Frank Act

    In developing the final rule, the Bureau has conducted an analysis 
of potential benefits, costs, and impacts,\5\ and has consulted or 
offered to consult with the prudential regulators and the Federal Trade 
Commission, including regarding consistency with any prudential, 
market, or systemic objectives administered by such agencies.
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    \5\ Specifically, section 1022(b)(2)(A) of the Dodd-Frank Act 
calls for the Bureau to consider the potential benefits and costs of 
a regulation to consumers and covered persons, including the 
potential reduction of access by consumers to consumer financial 
products or services; the impact on depository institutions and 
credit unions with $10 billion or less in total assets as described 
in section 1026 of the Dodd-Frank Act; and the impact on consumers 
in rural areas. This discussion considers the impacts of the final 
rule relative to existing law.
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    The final rule provides that the limitation on credit card account 
fees in Sec.  1026.52(a) applies only during the first year after 
account opening. Thus, once the final rule takes effect, fees that a 
consumer is required to pay prior to account opening are not subject to 
the limitation in Sec.  1026.52(a).
    The Bureau believes that the final rule may impose potential costs 
on consumers by permitting a creditor to collect fees that would have 
been disallowed under the Board's April 2011 Final Rule. Card issuers 
should benefit from clarification of the scope of Sec.  1026.52(a), 
which will resolve any uncertainty created by the South Dakota 
litigation. The final rule also permits card issuers to collect fees 
that were previously prohibited. The Bureau does not expect the final 
rule to impose costs on card issuers or to cause a reduction in 
consumer access to credit. All methods of compliance under previous 
regulation remain available to card issuers. Thus, a card issuer who 
was previously in compliance with Sec.  1026.52(a) need not take any 
additional action to remain so.
    The final rule has no unique impact on insured depository 
institutions or insured credit unions with $10 billion or less in 
assets as described in section 1026 of the Dodd-Frank Act, nor does the 
final rule have a unique impact on rural consumers.

VI. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) generally requires an agency 
to conduct an initial regulatory flexibility analysis (IRFA) and a 
final regulatory flexibility analysis (FRFA) of any rule subject to 
notice-and-comment rulemaking requirements, unless the agency certifies 
that the rule will not have a significant economic impact on a 
substantial number of small entities, including small businesses, small 
governmental units, and small not-for-profit organizations.\6\ The RFA 
defines a ``small business'' as a business that meets the size standard 
developed by the Small Business Administration pursuant to the Small 
Business Act.\7\ The Bureau also is subject to certain

[[Page 18797]]

additional procedures under the RFA involving the convening of a panel 
to consult with small business representatives prior to proposing a 
rule for which an IRFA is required. 5 U.S.C. 609.
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    \6\ 5 U.S.C. 601 et seq. The Bureau is not aware of any 
governmental units or not-for-profit organizations to which the rule 
would apply.
    \7\ 5 U.S.C. 601(3). The Bureau may establish an alternative 
definition after consultation with the Small Business Administration 
and an opportunity for public comment.
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    In the April 2012 Proposed Rule, the Bureau did not conduct an IRFA 
because the Bureau concluded that the proposed rule, if finalized, 
would not have a significant economic impact on any small entities. The 
Bureau reasoned that it did not expect the proposal to impose costs on 
card issuers because if the Bureau adopted the proposal as written, all 
previous methods of compliance would remain available to small 
entities. Thus, a small entity already in compliance need not take any 
additional action. The undersigned therefore certified that the 
proposed rule would not have a significant economic impact on a 
substantial number of small entities. 77 FR 21875, 21877 (Apr. 12, 
2012). The Bureau did not receive comment with respect to this 
certification or its underlying reasoning.
    The Bureau reiterates its previous conclusion that the overall 
effect of the final rule is to narrow the compliance obligations under 
Sec.  1026.52(a) for card issuers and to give card issuers additional 
certainty about how to comply with Sec.  1026.52(a). Accordingly, the 
undersigned certifies that this final rule will not have a significant 
economic impact on a substantial number of small entities.

VII. Paperwork Reduction Act

    The collection of information related to this final rule has been 
previously reviewed and approved by the Office of Management and Budget 
(OMB) in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3507(d)) and assigned OMB Control Number 3170-0015 (Expiration Date 11/
30/15). The Bureau determined that the April 2012 Proposed Rule would 
not impose any new recordkeeping, reporting, or disclosure requirements 
on covered entities or members of the public that would constitute 
collections of information requiring approval under the Paperwork 
Reduction Act, 44 U.S.C. 3501, et seq. The Bureau did not receive any 
comments regarding this conclusion, to which the Bureau adheres. The 
Bureau concludes that the final rule, which adopts the proposal in 
relevant respects, also imposes no new information collection 
requirements subject to the Paperwork Reduction Act.
    With this final rule, card issuers subject to Sec.  1026.52(a) will 
not have to comply with its fee limitations with respect to fees the 
consumer is required to pay prior to account opening. The Bureau 
believes that any burden associated with updating compliance under the 
final rule is already accounted for in the previously approved burden 
estimates associated with the collection in Regulation Z under the 
Board's January 2010 Final Rule. That rule imposed a similar limitation 
on fees.\8\ Accordingly, for the reasons stated above, the Bureau 
estimates that there is no increase in the one-time or ongoing burden 
to comply with the requirements under Sec.  1026.52(a).
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    \8\ See 75 FR 7791 for the Board's burden analysis under the 
Paperwork Reduction Act.
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    The Bureau has a continuing interest in the public's opinions of 
its collections of information. At any time, comments regarding the 
burden estimate, or any other aspect of this collection of information, 
including suggestions for reducing the burden, may be sent to: Consumer 
Financial Protection Bureau, Attention: PRA Office, 1700 G Street NW., 
Washington, DC 20552, or by the internet to CFPB_Public_PRA@cfpb.gov.

List of Subjects in 12 CFR Part 1026

    Advertising, Consumer protection, Credit, Credit unions, Mortgages, 
National banks, Reporting and recordkeeping requirements, Savings 
associations, Truth in lending.

Authority and Issuance

    For the reasons set forth in the preamble, the Bureau amends 
Regulation Z, 12 CFR part 1026, as set forth below:

PART 1026--TRUTH IN LENDING (REGULATION Z)

0
1. The authority citation for Part 1026 continues to read as follows:

    Authority: 12 U.S.C. 2601; 2603-2605, 2607, 2609, 2617, 5511, 
5512, 5532, 5581; 15 U.S.C. 1601 et seq.

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

0
2. Section 1026.52 is amended by revising paragraph (a)(1) to read as 
follows:


Sec.  1026.52  Limitations on fees.

    (a) Limitations during first year after account opening. (1) 
General rule. Except as provided in paragraph (a)(2) of this section, 
the total amount of fees a consumer is required to pay with respect to 
a credit card account under an open-end (not home-secured) consumer 
credit plan during the first year after account opening must not exceed 
25 percent of the credit limit in effect when the account is opened. 
For purposes of this paragraph, an account is considered open no 
earlier than the date on which the account may first be used by the 
consumer to engage in transactions.
* * * * *

0
3. In Supplement I to Part 1026--Official Interpretations:
0
A. Under Section 1026.52--Limitation on Fees:
0
i. The heading 52(a) Limitations prior to account opening and during 
the first year after account opening is revised.
0
ii. Under 52(a)(1) General rule, paragraphs 1 and 3 are revised.
0
iii. Under 52(a)(2) Fees not subject to limitations, paragraph 1 is 
revised.
    The revisions read as follows:

Supplement I to Part 1026--Official Interpretations

* * * * *
    Section 1026.52--Limitations on fees.
    52(a) Limitations during first year after account opening.
    52(a)(1) General rule.
    1. Application. The 25 percent limit in Sec.  1026.52(a)(1) 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's asset account to the card issuer or from another credit 
account provided by the card issuer). For example:
    i. Assume that, under the terms of a credit card account, a 
consumer is required to pay $120 in fees for the issuance or 
availability of credit at account opening. The consumer is also 
required to pay a cash advance fee that is equal to five percent of the 
cash advance and a late payment fee of $15 if the required minimum 
periodic payment is not received by the payment due date (which is the 
twenty-fifth of the month). At account opening on January 1 of year 
one, the credit limit for the account is $500. Section 1026.52(a)(1) 
permits the card issuer to charge to the account the $120 in fees for 
the issuance or availability of credit at account opening. On February 
1 of year one, the consumer uses the account for a $100 cash advance. 
Section 1026.52(a)(1) permits the card issuer to charge a $5 cash-
advance fee to the account. On March 26 of year one, the card issuer 
has not received the consumer's required minimum periodic payment. 
Section 1026.52(a)(2) permits the card issuer to charge a $15 late 
payment fee to the account. On July 15 of year one, the consumer uses 
the account for a $50 cash advance. Section

[[Page 18798]]

1026.52(a)(1) does not permit the card issuer to charge a $2.50 cash 
advance fee to the account. Furthermore, Sec.  1026.52(a)(1) prohibits 
the card issuer from collecting the $2.50 cash advance fee from the 
consumer by other means.
    ii. Assume that, under the terms of a credit card account, a 
consumer is required to pay $125 in fees for the issuance or 
availability of credit during the first year after account opening. At 
account opening on January 1 of year one, the credit limit for the 
account is $500. Section 1026.52(a)(1) permits the card issuer to 
charge the $125 in fees to the account. However, Sec.  1026.52(a)(1) 
prohibits the card issuer from requiring the consumer to make payments 
to the card issuer for additional non-exempt fees with respect to the 
account during the first year after account opening. Section 
1026.52(a)(1) also prohibits the card issuer from requiring the 
consumer to open a separate credit account with the card issuer to fund 
the payment of additional non-exempt fees during the first year after 
the credit card account is opened.
* * * * *
    3. Changes in credit limit during first year.
    i. Increases in credit limit. If a card issuer increases the credit 
limit during the first year after the account is opened, Sec.  
1026.52(a)(1) does not permit the card issuer to require the consumer 
to pay additional fees that would otherwise be prohibited (such as a 
fee for increasing the credit limit). For example, assume that, at 
account opening on January 1, the credit limit for a credit card 
account is $400 and the consumer is required to pay $100 in fees for 
the issuance or availability of credit. On July 1, the card issuer 
increases the credit limit for the account to $600. Section 
1026.52(a)(1) does not permit the card issuer to require the consumer 
to pay additional fees based on the increased credit limit.
    ii. Decreases in credit limit. If a card issuer decreases the 
credit limit during the first year after the account is opened, Sec.  
1026.52(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 credit limit was reduced. For example, assume 
that, at account opening on January 1, the credit limit for a credit 
card account is $1,000 and the consumer is required to pay $250 in fees 
for the issuance or availability of credit. The billing cycles for the 
account begin on the first day of the month and end on the last day of 
the month. On July 30, the card issuer decreases the credit limit for 
the account to $600. Section 1026.52(a)(1) requires the card issuer to 
waive or remove $100 in fees from the account or to credit the account 
for an amount equal to $100 within a reasonable amount of time but no 
later than August 31.
* * * * *
    52(a)(2) Fees not subject to limitations.
    1. Covered fees. Except as provided in Sec.  1026.52(a)(2), Sec.  
1026.52(a) applies to any fees or other charges 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, other than charges 
attributable to periodic interest rates. For example, Sec.  1026.52(a) 
applies to:
    i. Fees that the consumer is required to pay for the issuance or 
availability of credit described in Sec.  1026.60(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;
    ii. Fees for insurance described in Sec.  1026.4(b)(7) or debt 
cancellation or debt suspension coverage described in Sec.  
1026.4(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;
    iii. 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 fees for using the account 
for purchases);
    iv. Fees that the consumer is required to pay for violating the 
terms of the account (except to the extent specifically excluded by 
Sec.  1026.52(a)(2)(i));
    v. Fixed finance charges; and
    vi. Minimum charges imposed if a charge would otherwise have been 
determined by applying a periodic interest rate to a balance except for 
the fact that such charge is smaller than the minimum.
* * * * *

    Dated: March 22, 2013.
Richard Cordray,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2013-07066 Filed 3-27-13; 8:45 am]
BILLING CODE 4810-AM-P